UnitedHealth’s Optum in lead for Riordan, Lewis & Haden-backed Avella Specialty Pharmacy

  • LA-based RL&H’s investment dates to February 2009
  • Sum of the parts transaction was also considered
  • Sell-side advisers: Raymond James and BofA

UnitedHealth Group’s Optum subsidiary is nearing a deal to acquire Avella Specialty Pharmacy from Riordan, Lewis & Haden, according to sources with knowledge of the matter.

The anticipated transaction comes about nine years after Riordan, Lewis & Haden acquired a majority interest in the company, then called Apothecary Shops.

The Los Angeles buyout shop launched a sales process for Avella in first-half 2017, tapping Raymond James & Associates and Bank of America to advise on an auction, the sources said.

Founded as a single pharmacy in Scottsdale, Arizona, in 1996, Avella today represents one of the last independent specialty pharmacy operators of scale. The company also encompasses a compounding pharmacy business.

Avella expected about $47 million in adjusted 2017 Ebitda, sources said. Its compounding business accounted for about $17 million in Ebitda, or closer to $12 million when corporate overhead is included, one of the sources said.

The process was initially aimed at a sale of Avella in its entirety, but in response to inbound sponsor interest for the company’s compounding business, a piecemeal sale was later evaluated, sources said.

Only a select group of private equity groups were included in the process for the compounding operations, which one of the sources noted got underway in October.

Besides being drawn to its wide margins, sponsors viewed the compounding operations as an opportunity to create a second national provider in the sector, sources said.

The largest provider of outsourced sterile compounding services is PharMEDium, which Clayton Dubilier & Rice agreed to sell to AmerisourceBergen in a more than $2.5 billion cash deal in October 2015.

PharMEDium, one of the sources noted, was a large beneficiary of the challenges faced by New England Compounding Center. Quality issues at an NECC plant ultimately led to a massive meningitis outbreak starting in late 2012 after patients received contaminated injections.

While there may have been a little headline risk following the public-health crisis in Massachusetts, sources said a shift toward biosimilars, specialty dermatology products and injectables has created strong tailwinds for both pharmacy compounding and specialty pharmacy operations.

Specialty pharmacy, in particular, has become a critical area of strategic investment for large distributors and pharmacies, one of the sources said.

Avella, for its part, expanded its compounding operations in 2016 through deals for Houston’s Advanced Pharma Inc and Tampa’s Oncology Plus. It also moved its corporate headquarters to a new, 50,000 square-foot location encompassing a mail-order pharmacy and compounding facility.

Its specialty pharmacy business, meanwhile, has a wide range of specialties but focuses on oncology and infectious-disease treatments. In fact, Avella is home to the largest oncology platform in the U.S. after the only public pure play in the sector, Diplomat Pharmacy Inc.

The universe of buyers in the specialty pharmacy space has grown increasingly diverse in recent years. Besides pharmacy-benefit managers, insurers, retail drugstores and grocers have vied for a piece of the market.

Representatives of Riordan, Lewis & Haden, Avella, Raymond James, Bank of America and Optum didn’t immediately respond to requests for comment.

Action Item: Reach out to Riordan, Lewis & Haden’s Kenneth Hubbs at khubbs@rlhequity.com

A pharmacist counts pills in a pharmacy in Toronto in this Jan. 31, 2008, file photo. Photo courtesy Reuters/Mark Blinch