Wall Street bankers eye million-dollar payday from Amazon/One Medical Deal

  • On Thursday, tech giant Amazon agreed to buy primary care company One Medical for $3.9 billion.
  • Goldman Sachs advised Amazon on the deal, while One Medical was advised by Morgan Stanley.
  • Both banks are expected to pocket multimillion-dollar salaries for their services.

Goldman Sachs and Morgan Stanley just struck one of the biggest M&A deals of the year after winning mandates to work with Amazon and One Medical, respectively, Insider has learned.

Amazon agreed on Thursday to buy primary care clinic operator One Medical for $3.9 billion, offering a ray of hope in an otherwise barren environment for the investment bank in recent months. US dollar transaction volume fell 28% in the first half of the year compared to the first half of 2021, according to data from Refinitiv. Banks’ second-quarter profits were stifled by weak numbers from corporate investment banking departments.

Earnings at most major U.S. banks fell last quarter from a year ago as choppy public markets and soaring inflation caused trading to slow. Goldman Sachs, for example, reported $2.1 billion in investment banking revenue last quarter, down 41% from the second quarter of 2021. To address some of these concerns, Denis Coleman, director financial institution, said Goldman would cut hiring and reduce compensation spending.

To bring Amazon’s acquisition of One Medical to life, Goldman and Morgan Stanley turned to proven rainmakers.

Morgan Stanley’s Cheri Mowrey, head of U.S. healthcare investment banking, and Ari Terry, managing director of the company’s M&A division which focuses on healthcare, led the agreement for One Medical.

Dave Eisman of Goldman, head of the Northwest region and co-head of the firm’s Western region advisory group within the investment banking division, and Jim Sinclair, managing director of the healthcare group of the bank that covers health services and tech companies, co-led the execution on behalf of Amazon.

For Morgan Stanley, this is a welcome loyalty that has taken years to develop. The Wall Street bank, alongside JPMorgan, was one of One Medical’s top underwriters $245 million IPO in January 2020.

Morgan Stanley also notified the clinic operator when it bought Iora Health for $2.1 billion in June 2021.

Goldman, meanwhile, has a history with Amazon. In 2017, the bank advised Amazon on its Acquisition of Whole Foods grocery store for $13.7 billion Market and provided bridge financing for the transaction.

“We were not actively looking to sell the business”

One Medical, which went public in 2020 at a $1.7 billion valuation, was not looking for a buyer, according to a person familiar with the deal, who asked not to be identified when discussing information. private.

Nonetheless, Amazon appears to have approached the firm earlier this year. “We weren’t actively looking to sell the business,” the person said. “As trustees, as any board would, you have to think very seriously when you have incoming interest, especially from people who have cash on hand.” (Bloomberg reported earlier this month that CVS Health and others also expressed interest in One Medical.)

Amazon “knew quite a bit about One Medical before anything started happening,” the person added. “They knew a lot about their strategies. They knew a lot about the different players in the market.”

An Amazon spokesperson declined to comment beyond Thursday’s press release. A spokesperson for One Medical did not immediately respond to a request for comment.

Amazon’s deal for One Medical was an all-cash deal, paying $18 per share. At its peak after its 2020 public offering, One Medical was trading north of $58 per share, in mid-February 2021. The gap underscores the turbulent market environment, which has seen the S&P 500 index decline more than 17% since the start of the year. There are few indications that the market will rebound anytime soon, forcing boards to consider whether to wait out the storm or act before conditions worsen.

The person familiar with the transaction said One Medical’s board had considered all options, ranging from continuing with the sale to maintaining the status quo. Ultimately, the person said, the board decided that accepting the sale was in the interests of shareholders, adding that many companies are currently facing similar decisions.

Private equity giant Carlyle exits stake in One Medical

As part of the deal with Amazon, private investment firm Carlyle will exit its One Medical position entirely, Insider also learned. Carlyle made a minority investment of up to $350 million in 2018, according to another person familiar with the deal, but in doing so he became the largest shareholder in the then-private company.

During this period, One Medical’s revenue has grown from around $200 million in 2018 to a rough estimate of $1.1 billion this year. Its physical footprint of clinics has more than doubled from 70 in 2018 to over 180 today, and over the same period One Medical has launched several new consumer products, such as chronic care management and a virtual care offering called One Medical Now.

Now, as Amazon prepares to take over, the person familiar with the deal pointed to the tech giant’s focus on customer service as a defining value that makes it the right owner for a business. like One Medical, and expressed confidence that billionaire Jeff Bezos’ consumer empire can help the company grow.

“Amazon cares a lot about [the customer experience] in their core business and finding an area of ​​healthcare they want to get into with a company like One Medical… I think that’s pretty powerful,” this person said.

A million dollar salary for the banks

Goldman Sachs and Morgan Stanley, meanwhile, are expected to collect millions of dollars in fees for their advisory services.

Investment banks typically earn 2% in fees for advising a company on an acquisition or sale. This can sometimes reach 4% of the enterprise value of a transaction.

At the lowest level, and using this calculation, that’s over $70 million for advisors at Amazon and One Medical. But a customer like Amazon — which comes with lucrative business activity in a variety of industries, from entertainment to technology and retail — may tempt a bank to lower its asking price in hopes of gaining continued business activity. . It is unclear what the banks will actually pocket.

A banker specializing in mergers and acquisitions said a major Wall Street bank could lower its expectations to between 1% and 1.5% of the deal’s value for the right client.

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