McKesson (MCK) Acquires Medical Specialties for $800 million

McKesson Corporation (MCK) recently completed its previously-announced acquisition of Medical Specialties Distributors (MSD) for a value of $800 million.

The deal is part of a continuing effort by McKesson management to respond to changes in healthcare supply and device distribution. It further complements McKesson’s existing low-cost site of care infusion platform.

The deal was initiated when New York-based New Mountain Capital agreed to sell MSD to McKesson Corporation. During New Mountain’s ownership, MSD’s enterprise value approximately tripled, which might prove to be accretive to McKesson’s earnings over the long term.

Notably, MSD is a medical supply and equipment distributor, based in Stoughton, MA.The company serves a diversified, long-tenured customer base across 10,000 sites nationwide. MSD’s established offering to providers in the home infusion market, as well as technology and services to patients, will enable McKesson to provide incremental services to other customer segments.

Furthermore, McKesson recently announced a multi-year strategic growth initiative, which will provide enhanced solutions for the rapidly-growing specialty pharmaceutical market.

Price Performance

We believe developments, such as these, will provide cushion to McKesson’s shares which have declined 14.2% compared with the industry’s gain of 4.1% in a year’s time.

Market Prospects Lucrative

Per Zion Market Research, the global home healthcare market was valued at $228.90 billion in 2015 and is expected to generate revenues of $391.41 billion by 2021, growing at a CAGR of 9.40% between 2016 and 2021.

Hence, it can be concluded that McKesson’s move has been a timely and strategic one.

McKesson’s Acquisition Portfolio

McKesson has been actively pursuing acquisitions to drive inorganic growth.

Lately, the company completed the acquisition of RxCrossroads from CVS Health, for a transaction worth $735 million. Per management, the RxCrossroads acquisition has expanded the company’s broad range of solutions throughout the lifecycle of the drug for biopharma companies. It also supports manufacturer programs and specialty solutions.

Additionally, in the recent past, the company acquired CoverMyMeds, an electronic prior authorization solutions provider to pharmacies, for $1.1 billion.

The company has also been working to integrate Rexall and other recent acquisitions which are expected to drive its earnings.

Zacks Rank & Key Picks

McKesson currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space are, Abiomed, Inc. (ABMD), Genomic Health, Inc. (GHDX) and Varian Medical Systems, Inc. (VAR).

Abiomed has a long-term growth rate of 27%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Genomic Health has an expected growth rate of 187.5% and flaunts a Zacks Rank of 1.

Varian Medical has a projected long-term growth rate of 8%. The stock carries a Zacks Rank #2 (Buy).

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