In a saga mirroring the turbulent fortunes of the brick-and-mortar pharmacy and PBM industries, Rite Aid swallowed a bitter pill on January 9th, 2024, reportedly receiving the bankruptcy judge's approval for a $575 million divestiture of its pharmacy benefit management (PBM) arm, Elixir Rx Solutions, to MedImpact Healthcare Systems, a large PBM solutions provider. Elixir (then EnvisionRx) was originally acquired by Rite Aid for ~$2 billion net of acquired cash on June 24, 2015, a multiple of ~13x $150 to $160 million of EBITDA at that time. The acquisition was seen as an important component of Rite Aid's strategy to expand its retail healthcare platform and enhance health and wellness offerings for its customers, and was once referred to as its "crown jewel."
For Rite Aid, the immediate benefit of the divestiture is clear: a financial lifeline that could provide a bridge to stability and free the organization from the complexities of PBM operations. Critics could argue that divesting Elixir weakens Rite Aid's bargaining power with the big three PBMs (CVS/Caremark, Cigna/Express Scripts, and United/OptumRx) and could further erode its already slim margins. Additionally, the divestiture raises questions about the company's long-term strategy: Can it survive and thrive solely on its retail pharmacy operations in a fiercely competitive environment?
PBM EBITDA Multiples
According to Rite Aid's Q1 2024 earnings release, it reduced its FY 2024 adjusted EBITDA outlook for its Pharmacy Services Segment (Elixir) by $10 million to a range of $90 to $100 million due to higher drug costs and a higher medical loss ratio. Elixir's adjusted EBITDA for the fiscal year ended March 4, 2023 was $141.1 million. The implied multiple of 6.05x FY 2024 EBITDA is by far the lowest PBM multiple in our database, reflecting operational concerns and the regulatory risk surrounding the PBM industry as a whole.
Other Managed Care Deals
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The Scope Research Healthcare M&A Valuation Database currently has financial details for 124 managed care deals going back to 2010, 73 of which include reported EBITDA multiples. The managed care database can be purchased individually, while our affordable annual subscriptions provide access to all of our healthcare M&A databases and segments, updated continuously.
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