In order to consolidate its foothold in Newport, Magellan Health Services, Inc. (MGLN) inked a deal to acquire privately held CDMI, LLC for a base purchase consideration of $205 million. Additionally, potential contingent payments of $165 million will also be made by Magellan.
CDMI, founded in 2009, offers an array of clinical consulting programs and administers and negotiates drug rebates for managed care organizations as well as for other customers. CDMI currently works with over 30 plans and during 2013 it had net revenue of nearly $43 million, which was primarily driven by rebate management.
Magellan will pay $125 million in cash as part of base purchase consideration at the closing of acquisition. Another $80 million will be reinvested in Magellan’s restricted common stock by certain key management of CDMI and the principal owners. Moreover, $165 million of potential contingent payment will be made depending on certain performance targets that CDMI is expected to reach.
The acquisition is expected to enrich the current clinical specialty drug and medical management support capabilities of Magellan. Moreover, the acquisition will allow Magellan Rx Management to sell its pharmacy benefit management (PBM) capabilities into CDMI’s customer base and the MCO market. With the acquisition, Magellan will be able to provide high-quality clinical programs and services for managing chronic conditions.
CDMI’s relationships, clinical products and services coupled with Magellan’s industry leading pharmacy-offerings are expected to improve the pharmacy business of the acquirer, which posted weak financial results for the fourth quarter of 2013.
Magellan presently carries a Zacks Rank #4 (Sell). Some better-ranked stocks worth mentioning in the medical sector are ICON Public Ltd Co. (ICLR), Aetna Inc. (AET) and WellPoint Inc. (WLP). While ICON Public sports a Zacks Rank #1 (Strong Buy), Aetna and WellPoint carry a Zacks Rank #2 (Buy).