Cardinal Health Will Pay $2.07B for AssuraMed

Cardinal Health will pay $2.07 billion to acquire privately held AssuraMed, a provider of medical supplies to in-home patients. AssuraMed is backed by Clayton, Dubilier, & Rice and GS Capital Partners. The acquisition, expected to close in April, will be financed with $1.3 billion in new senior unsecured notes and the remainder in cash.

PRESS RELEASE

Cardinal Health today announced plans to acquire privately held AssuraMed, a leading provider of medical supplies to patients in the home, for $2.07 billion, or $1.94 billion, net of the present value of tax benefits. The acquisition will be financed with a combination of $1.3 billion in new senior unsecured notes and the remainder in cash. The transaction is expected to close by early April 2013.

“AssuraMed is a natural extension of the Cardinal Health businesses and of our mission to be essential to care. The acquisition of this industry leader allows us to serve the growing number of Americans treated in home settings – particularly those patients recovering from acute episodes and those suffering with chronic diseases. This is a platform opportunity for Cardinal Health products and services which will be increasingly important as the delivery of care migrates to more cost-effective settings,” said George Barrett, chairman and chief executive officer of Cardinal Health.

“It has been a central component of our strategy to help enable the health care system by serving patients throughout the continuum of care. This acquisition further aligns us with key trends including demographic shifts and increased consumerism,” Barrett noted. “AssuraMed has an outstanding management team, a mission closely aligned with ours, and a track record of extraordinary customer service and outstanding financial performance. We will be very excited to welcome the AssuraMed team to the Cardinal Health organization.”

Assuming the transaction closes by early April 2013, Cardinal Health expects accretion of $.02 – $.03 to its existing non-GAAP fiscal 2013 earnings per share guidance range. For fiscal 2014, the company estimates non-GAAP EPS accretion of at least $.18 per share, including the cost of an incremental $.08 – $.09 per share of interest expense associated with financing the transaction. The company did not provide the preliminary estimates of the impact of the transaction on fiscal 2013 and 2014 GAAP EPS since the impact is dependent on the timing of the closing and final valuation of intangible assets. Cardinal Health expects the amortization of acquisition-related intangible assets, which are excluded from its non-GAAP EPS, to be a significant expense in fiscal 2013 and 2014.

With annual sales in calendar year 2012 of approximately $1 billion, which includes the sales of the recently acquired Invacare Supply Group, AssuraMed currently serves more than 1 million patients nationally with more than 30,000 products. The company operates through two separate businesses, Independence Medical and Edgepark Medical Supplies. In addition to broadening Cardinal Heath’s reach into the home, AssuraMed’s expertise in products for specific disease categories and small parcel logistics will significantly enhance Cardinal Health’s ability to service customers across the broad ambulatory care channel, including care sites such as physician offices and in support of home health agencies. This will also allow Cardinal Health to provide a comprehensive solution for integrated delivery network, retail pharmacy and medical equipment provider customers, who are currently delivering services to the home. The AssuraMed acquisition will also bring additional value to these customers through medical billing expertise and a comprehensive set of relationships with commercial and government payors.

“We are very excited about becoming part of Cardinal Health. Cardinal Health has a long and successful tradition in providing health care solutions to its customers and we know this expertise will enable AssuraMed to move even farther and faster in building out our home care business,” said Michael Petras, AssuraMed CEO.

After the transaction is complete, Cardinal Health will supply the home health care channel with product lines including ostomy, diabetes, insulin therapy, urological, wound care and incontinence. The company also expects to use this acquisition as a platform to begin offering a variety of its current product offerings in the direct-to-home channel.

Advantages of the acquisition

– Furthers Cardinal Health’s leadership in providing broadest products and services from the hospital to the home

– Strategically aligned with where health care is moving, to ambulatory care and more cost-effective settings

– Growing channel allows Cardinal Health to serve patients with chronic diseases or receiving post-acute care

– Extends Cardinal Health core capabilities to the home with specialized and scalable platform

– Enhances Cardinal Health’s payor relationships and expertise

– Close to Cardinal Health DNA in operations management and logistics, customer service orientation, product lines and company culture

– Opportunity to deliver Cardinal Health-branded medical products direct to patients/consumers and local Home Medical Equipment providers

– Extends Cardinal Health offering to retail pharmacy and health system customers

– Brings incremental expertise in small parcel fulfillment, enabling growth in physician offices

– Creates a robust platform for future Cardinal Health product and service offerings

AssuraMed facts

– $1 billion calendar 2012 revenues (including revenues of Invacare Supply Group, acquired by AssuraMed in January 2013)

– Excellent growth platform in a large segmented channel

– Serving more than 1 million patients, offering 30,000 products; 12 distribution centers

– Strong brands, value-added small parcel distribution capabilities, industry-leading reimbursement platform and a focus on customer service

– Proprietary, regulatory compliant medical billing and reconciliation infrastructure; more than 1,000 payor contracts

– More than 6,000 patient touch points daily

– Growing, recurring revenue streams and strong customer retention

– Experienced healthcare management team with proven track record

The closing of this transaction is subject to customary closing conditions, including regulatory clearances. The necessary AssuraMed shareholder approvals from Clayton, Dubilier, & Rice, LLC and GS Capital Partners have already been obtained. Cardinal Health also obtained a commitment letter from BofA Merrill Lynch for a new $1.3 billion senior unsecured bridge term loan in connection with the planned acquisition. Cardinal Health was advised by BofA Merrill Lynch and Wachtell Lipton Rosen and Katz. Clayton, Dubilier, & Rice and GS Capital Partners were advised by J.P. Morgan, Goldman, Sachs & Co., and Debevoise & Plimpton LLP.

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