Amazon’s acquisition of One Medical last Thursday could influence others in the industry to make similar moves, experts say.
Samantha Prokop, a shareholder specializing in mergers and acquisitions at Florida-based law firm, Gunster, said she’s advising her clients to look beyond the sector’s traditional funding sources. While large private equity or venture capital firms have traditionally staked their claim, Amazon’s entrance into the space sends a clear message.
“This really opens up opportunities for other potential buyers. Amazon is not somebody you would typically expect to see in this space,” Prokop said. “This is really exciting, I think, and opens a whole array of opportunities as far as who might end up being competitors.”
In addition to its available capital, Prokop said Amazon is a good partner for companies in digital health given its expertise in supply chain management and technology. She also said this deal should be a wakeup call for health systems.
“This is going to be ripe for more companies to try to come in and compete in this space. I don’t think they’re just going to let Amazon take over,” Prokop said.
Jacob Effron, principal at principal at venture capital firm, Redpoint Ventures, said that he wouldn’t be surprised if payers like Humana, as well as retailers like Walgreens and CVS Health, made moves of their own in the primary care space that One Medical operates in.
“Everyone recognizes that primary care is one of the most strategic assets you can have in healthcare,” Effron said. “It’s like a gateway to everything else that comes downstream. With Amazon and those other companies, once they have a longitudinal relationship with the patient, they can figure out the financial side of the business.”
For healthcare companies with this strategic asset, Amazon can be viewed as a potential strategic exit, said Matt Wolf, a director and senior healthcare analyst at RSM, a healthcare consultancy.
“This is probably a more impactful acquisition for the overall healthcare capital market scene than when Amazon bought PillPack,” Wolf said. Amazon purchased the online pharmacy that delivers prescriptions pre-sorted by the dose in 2018.
While the deal put large pharmacy chains on guard, it did not fundamentally reshape the industry. Many experts expect a similar outcome from this deal and are not anticipating Amazon to establish a dominant market share in healthcare delivery.
“I cannot see them taking a 40% market share the way that they did in e-commerce in the United States,” said Ali Parsa, founder and CEO of Babylon Health, a digital-first health service provider operating in a similar market. “Healthcare is a $10 trillion-dollar global market. U.S. healthcare alone is a $4 trillion dollar market.”
Most experts viewed the timing of Amazon’s acquisition as a calculation between the market’s overall decline and Amazon’s announcement of Amazon Care last year.
“Whether or not they got a deal will be the subject of a lot of boardroom discussions,” Wolf said. “The offer price of $18 per share was still well below where One Medical IPO’ed.”
The deal's $3.9 billion price tag includes several provisions. According to federal disclosure documents, Amazon will provide interim debt financing to One Medical of up to $300 million. The ten payments of $30 million will begin March of 2023.
The companies agreed to a termination fee of $136 million owed to Amazon if One Medical backs out of the deal and $195 million owed to One Medical if the deal isn't approved by federal regulators.
Both Parsa and Wolf said Amazon likely recognized an acquisition this year was far cheaper than it would have been a year ago. Effron said that it is an attractive time for a strategic acquisition if a company has money on the balance sheet as company valuations have come back down to earth.
“In that sector nobody believes that’s the value of the companies,” Parsa said. “We all believe that the public markets have gone crazy on one hand, therefore people are moving into this. One Medical would have had the same challenges that so many other companies do.”
While the deal prompts optimism, Parsa cautioned against believing the deal would have an outsized impact. He said this deal allows Amazon to compete in primary care but likened it to others in the company’s past where it was a tiny part of what they do, such as its purchase of Whole Foods.
“It’s one of many, many, many things they are doing, right,” Parsa said. “It is a tiny part of the revenue and at best, it will be like what they have done with grocery.”
Gabriel Perna contributed to this story.