Cardinal Health plans to buy two companies that will expand its diabetes and gastroenterology businesses as part of an overall strategy to grow its footprint in specialty medicine.
The pharmaceuticals and specialty products distributor announced Tuesday it entered into definitive agreements to acquire a majority stake in GI Alliance (GIA), a gastroenterology management services organization from a combination of GIA physician owners and funds managed by affiliates of Apollo. Cardinal Health said it will purchase its majority stake for approximately $2.8 billion in cash, which will represent 71% ownership.
Also on Tuesday, the company, which also offers data analytics services, said it plans to buy the Advanced Diabetes Supply Group (ADSG), a leading diabetic medical supplies provider, for approximately $1.1 billion in cash.
ADSG will merge with Cardinal Health's at-Home Solutions business, while GIA will operate as a platform within Cardinal Health's Pharmaceutical and Specialty Solutions segment, the company said.
The company's shares were up 2% Tuesday.
Jason Hollar, Cardinal Health's chief executive officer, told investors during a conference call Tuesday that the deals represent "strategic and financially compelling transactions" that build on the company's progress in specialty and accelerate growth in its at-home solutions business.
"Over the past two years, we have improved operating performance and financial flexibility by executing on our focused growth strategy. These transactions enhance Cardinal Health's ability to deliver a greater value proposition for providers and patients while representing the next step in our ongoing focus to drive sustainable shareholder value creation," Hollar said.
GI Alliance's MSO platform includes over 900 physicians across 345 practice locations in 20 states. GIA supports a complete continuum of gastroenterology care across its member sites, with significant additional depth in anesthesiology, pathology, infusion, radiology and clinical research. GIA-affiliated doctors treat patients in 135 ambulatory surgical centers and 165 hospital networks, supported by 95 infusion centers.
The acquisition of GI alliance will enable a platform of multispecialty services, Hollar told investors in the conference call. "The resulting set of capabilities will enhance practice efficiency, expand available patient services and ensure optimal care across key specialty therapeutic areas. Within the handful of the key non-oncology specialty therapeutic areas, GI is a $40 billion addressable market where we see strong and growing demand for GI-related services," he said.
Beginning on the third anniversary of GIA's closing, Cardinal Health has the ability to exercise a call right to purchase up to 100% of the remaining outstanding equity, the company said in a press release.
In September, Cardinal Health revealed it had a deal in place to acquire Integrated Oncology Network, a collection of more than 50 community oncology centers, for just over $1.1 billion. The pickup will see ION’s practices, over 100 providers and other practice management and practice growth services join Navista, Cardinal’s cancer unit.
In January, the company picked up Specialty Networks, an integrated platform focused on independent physician practices across urology, gastroenterology and rheumatology as well as life sciences organizations. Cardinal Health said it was a $1.2 billion cash deal.
Cardinal Health plans to expand GI Alliance into new markets and into other key therapeutic areas, while also building upon the technology and specialty practice capabilities that Cardinal picked up through the Specialty Networks and Integrated Oncology Network deals.
"Growing our Specialty business is our top priority," Hollar said "By partnering the GIA MSO platform and leadership in gastroenterology with our own national presence and specialty experience, GI Alliance and Cardinal Health together create a meaningful platform that will deliver great results for patients and providers. We are excited to welcome James Weber, M.D., and his team to the Cardinal Health family."
Advanced Diabetes Supply Group is a national provider for direct-to-patient diabetes medical supplies. The company serves approximately 500,000 patients annually.
With the ADSG acquisition, Cardinal Health sees opportunities in the growing home healthcare market, driven by the aging population, increased consumer expectations and the rise of chronic conditions, Hollar said. With increasing demand for diabetes management tools, the continuous glucose monitor market is booming.
"With the recognition of the value of CGMS, the continuous innovation from our manufacturer partners and increasing access from favorable legislative changes, the market for these life-saving devices is significant and growing quickly at an approximate 10% CAGR annually. Additionally, we view our distribution of GLP-1s, a therapy, as complementary to our distribution of CGMS, the monitoring device and standard of care for diabetes patients," he said.
Cardinal Health has made operational investments in its at-home solutions business to expand capacity and increase automation.
"Last January, we elevated the priority of investing in our growth businesses like at-Home Solutions because this is exactly where the future of healthcare is going," said Hollar. "Like at-Home Solutions, ADSG has a proven track record for leading this industry with innovation, knowledge and unparalleled commitment to patients. We're confident that the highly synergistic combination will enhance our ability to take advantage of positive industry trends and drive further growth, deliver on our promise of exceptional service and solutions to customers, and create shareholder value."
Cardinal Health also reaffirmed its capital allocation framework. The company expects both the GIA and ADSG acquisitions to close in early calendar year 2025. The two transactions are expected to be accretive to Cardinal Health's revenue and segment profit growth, and to non-GAAP earnings per share (EPS), in the first 12 months following close.
Including the acquisition of Integrated Oncology Network, which remains on track to close by the end of the calendar year, the company intends to finance the announced transactions with a combination of cash on hand and new debt financing.
In connection with the acquisition agreements, the company entered into a commitment letter with Bank of America and received a senior unsecured bridge term loan facility in an aggregate principal amount of up to $2.9 billion to fund the acquisitions.
At its investor day in June 2023, Cardinal Health laid out an "ambitious" plan to generate $6 billion in adjusted free cash flow over three years while continuing to invest in the business, maintaining its investment-grade rating and returning at least $1 billion per year back to shareholders, Aaron Alt, Cardinal Health's chief financial officer, told investors Tuesday.
"Now, fast forward 18 months, with the power of our strategy and excellent execution by our team demonstrated in our full-year, fiscal '24 and most recent Q1 fiscal '25 results, we are in the position to proactively take actions like the strategic investments announced today," Alt said. "We are excited for the long-term growth and opportunities that both of these transactions bring to Cardinal Health."