Nautic and Oak HC/FT to sell LDI Integrated Pharmacy Services

Diplomat Pharmacy has agreed to acquire St. Louis, Missouri-based LDI Integrated Pharmacy Services, a pharmacy benefit manager, for $515 million in cash. The sellers include Nautic Partners LLC and Oak HC/FT Partners LLC. J.P. Morgan Securities LLC provided financial advice to Diplomat on the deal while Houlihan Lokey did likewise to LDI.

PRESS RELEASE

FLINT, Mich., Nov. 15, 2017 /PRNewswire/ — Diplomat Pharmacy, Inc. (NYSE: DPLO), has entered into a definitive agreement to acquire Leehar Distributors, LLC, doing business as LDI Integrated Pharmacy Services (LDI), from investment firms Nautic Partners, LLC and Oak HC/FT Partners LLC, and management. The transaction is expected to close in 30–60 days.

Diplomat will discuss its acquisition on a conference call at 5 p.m. ET Wednesday, Nov. 15. Listen to a live broadcast by calling 833.286.5805 (647.689.4450 for international callers) and using participant code 1788088. A recording of the conference call will be available for approximately 90 days on the investor relations section of Diplomat’s website at ir.diplomat.is.

LDI Integrated Pharmacy Services is a full-service pharmacy benefit manager (PBM) based in St. Louis, Missouri. LDI’s service offering includes URAC–accredited mail-order and specialty pharmacies, a national network of retail pharmacies, and comprehensive clinical programs.
Diplomat announced its first PBM acquisition of National Pharmaceutical Services (NPS) on Nov. 6. The acquisition of NPS gives Diplomat a proprietary claims-processing system, as well as PBM capabilities. The acquisition of LDI positions Diplomat to take a strategic leap forward, becoming a highly differentiated specialty company and giving health care payors access to a robust specialty platform to manage this high-cost, fast-growing component of pharmacy benefits.

“Bringing on LDI is an even bigger step as Diplomat evolves from a specialty pharmacy provider to a broader health care company,” said Phil Hagerman, CEO and chairman of Diplomat.

“LDI expands Diplomat’s ability to meet growing demand from small and midsize health insurers, third-party administrators, and self-insured organizations. We can give payors access to a robust specialty platform to manage this high-cost, fast-growing component of pharmacy benefits.”
LDI dramatically increases the scope of Diplomat’s PBM capabilities, Hagerman said.

“We now field a leadership team with decades of PBM and specialty experience,” he said. “The combined company will have the enhanced ability to serve middle-market payors hungry for a service model that helps patients achieve optimal well-being with complex therapies while delivering cost-containment strategies that impact pharmacy costs under both the medical and pharmacy benefit.”

Len Dino, CEO of LDI, said LDI’s strong clinical foundation and long commitment to providing high-quality patient care align nicely with Diplomat.

“We see further opportunities to help health care payors rein in rising pharmacy costs,” Dino said. “With the added resources of Diplomat, LDI can make a dramatic impact for our clients while increasing members’ access to life-saving therapies. We’ll continue to build upon our 50-year legacy of transforming how pharmacy care is delivered.”

Cost management within pharmacy benefits has evolved considerably over the past 10 years, said Diplomat President Joel Saban.

“With 90 percent of traditional medications now filled as generics, it’s specialty pharmacy costs that are driving pharmacy spend for payors,” Saban said. “To offer real solutions to today’s challenges, a new model with a diverse set of assets is needed. The need for specialty benefit management solutions has never been more urgent. Deep clinical expertise across therapeutic categories, a network of home infusion providers, advanced data analytics platforms, and trusted industry relationships are all critical.”

Saban said Diplomat has rights to dispense more limited-distribution drugs—approximately 100—than any other independent specialty pharmacy.

“This access positions us to provide an enhanced breadth of service to the LDI client base,” he said. “Authority to distribute these drugs requires extensive data collection and monitoring capabilities, proven patient support programs, and strong relationships with pharmaceutical manufacturers—all strengths of Diplomat.”

Albert Thigpen, chief operating officer of LDI, added, “Today’s pharmacy benefit market is underserved and in need of new solutions. The combined company will fill these gaps—creating synergy across specialty pharmacy, pharmacy benefits, and infusion therapy—and we’re excited to provide the missing link. With LDI’s leading-edge technology platform, we will educate and empower patients to better manage these complex therapies while bringing clients innovative approaches in specialty benefit management.”

Under the terms of the agreement, Diplomat will pay LDI $515 million cash and approximately $80 million in Diplomat common stock. LDI is expected to generate approximately $388 million in revenue and $41 million in adjusted EBITDA in 2017. The cash portion of the acquisition is expected to be funded by Diplomat’s new $795 million senior secured credit facility, the proceeds of which will also be used to terminate Diplomat’s outstanding credit facility.

Honigman Miller Schwartz and Cohn, LLP, and Quarles & Brady, LLP, acted as legal counsel to Diplomat. J.P. Morgan Securities LLC acted as Diplomat’s financial advisor and JPMorgan Chase Bank, N.A. and Capital One, National Association have provided committed financing for the transaction. Houlihan Lokey served as the exclusive financial adviser to LDI. Goodwin Procter, LLP, acted as LDI’s legal counsel.