Amazon's Acquisition of One Medical: An In-Depth Exploration

1. Introduction (Background Information)

In July 2022, Amazon declared its intention to acquire One Medical in a monumental deal valued at
$3.9 billion. One Medical, recognized for its emphasis on technology-driven personalized
healthcare, boasts a widespread network of over 220 medical offices across 27 US markets, serving
836,000 members and 9,000+ enterprise clients. Amazon, already entrenched in healthcare ventures
such as PillPack (pharmacy), Amazon Care (telehealth), and the Halo band (wearables), seeks to
broaden its healthcare presence.

2. Motives Behind the Deal:

Amazon:
Healthcare Market Expansion:

 Physical Presence: Amazon's pursuit of acquiring One Medical is rooted in the desire to
establish a tangible footprint in the healthcare market. The addition of One Medical's
extensive network of medical offices across the United States provides Amazon with a brick-
and-mortar presence, allowing it to reach customers in a more traditional healthcare setting.
 New Customer Acquisition: Beyond physical presence, Amazon aims to attract new
customers to its healthcare ecosystem. The acquisition of One Medical enables Amazon to
tap into the existing patient base and attract individuals seeking personalized, technology-
enabled healthcare services.
 Integrated Care Services: One of the strategic goals is to offer integrated care services. By
bringing One Medical into its fold, Amazon envisions creating a seamless healthcare
experience for customers, encompassing everything from telehealth to in-person visits.

Technology Integration:

 Telehealth Enhancement: Leveraging One Medical's technological capabilities, Amazon

seeks to elevate its telehealth offerings. The integration of One Medical's advanced telehealth
solutions allows Amazon to provide more sophisticated and comprehensive virtual
healthcare services to its users.
 Data Fortification: The acquisition is driven by a keen interest in fortifying data collection
and analysis capabilities. By incorporating One Medical's data-driven approach, Amazon
aims to enhance its understanding of user health patterns, preferences, and trends, thereby
improving the overall quality of healthcare services offered.

Prime Membership Integration:

 Enhanced Membership Benefits: Integrating healthcare benefits into Amazon Prime

subscriptions is a strategic move to increase the allure of Prime membership. This holistic
approach aims to attract and retain customers by offering a comprehensive package that
includes not only the traditional e-commerce benefits but also an array of healthcare
services. This integration aligns with Amazon's customer-centric strategy, enhancing the
overall value proposition for Prime members.
One Medical:

Financial Benefits:

 Cash Infusion: Beyond the strategic synergies, One Medical stands to gain significant
financial benefits from the acquisition. The $3.9 billion deal represents a substantial cash
infusion, providing One Medical with the capital needed for expansion, innovation, and
further development of its healthcare services.
 Access to Resources and Scale: The acquisition opens doors to Amazon's vast resources
and operational scale. One Medical can leverage Amazon's financial strength and operational
expertise to accelerate its growth, invest in technological advancements, and solidify its
position in the competitive healthcare landscape.

Customer Reach:

 Expanding Market Reach: One Medical's anticipation of expanded market reach through
Amazon's extensive customer base is a pivotal motive. The acquisition offers One Medical
the opportunity to tap into Amazon's massive user ecosystem, exposing its healthcare
services to a broader audience and potentially gaining new clientele who may not have been
familiar with its offerings.

Technological Collaboration:
 Operational Efficiency: Integrating with Amazon's tech platform goes beyond customer
acquisition—it aims to enhance operational efficiency. By aligning technological systems
and processes, One Medical expects to streamline its operations, reduce redundancies, and
improve overall efficiency.
 Enhanced Patient Experience: The collaborative technological efforts between One
Medical and Amazon are geared towards creating a superior patient experience. By
integrating technologies seamlessly, both companies aim to offer a more cohesive, user-
friendly, and technologically advanced healthcare experience to their combined user base.

3. Valuation Methods Used:

The meticulous valuation of One Medical for Amazon's acquisition was conducted through a
multifaceted approach, incorporating several rigorous methods to arrive at the final acquisition price
of $3.9 billion. This comprehensive valuation approach aimed to ensure a thorough understanding of
One Medical's intrinsic worth within the dynamic healthcare landscape.

 Market-Based Valuation: One Medical's stock price was compared to industry peers within
the healthcare sector. By benchmarking against similar companies, Amazon sought to gauge
how One Medical's financial performance and market position stacked up in relation to its
contemporaries. This comparative analysis provided valuable insights into the company's
relative valuation within the industry.
 Discounted Cash Flow (DCF): The DCF method involved a rigorous analysis of One
Medical's anticipated future cash flows. By estimating the future cash inflows and outflows,
Amazon aimed to derive a present value that reflected the intrinsic value of One Medical.
  Transaction Multiples: Analysis of similar M&A deals in the healthcare industry for
reference. This involved scrutinizing the financial metrics of comparable acquisitions,
considering factors such as deal size, market conditions, and strategics

The synergy of these valuation methods allowed for a holistic evaluation of One Medical's worth,
considering both its current market standing and future growth potential. The final acquisition price
of $3.9 billion, representing a substantial premium of approximately 70% over One Medical's pre-
announcement stock price, underscored the thoroughness of the valuation process.

4. Implications for Both Companies & Their Shareholders:

Amazon:
- Increased Competition: Amazon's foray into healthcare may spark competition with
traditional providers and pharmaceutical companies.
- Regulatory Scrutiny: The Federal Trade Commission (FTC) is likely to scrutinize the deal,
raising potential antitrust concerns due to Amazon's dominance.
- Integration Challenges: Merging One Medical's technology and culture with Amazon's
systems poses complex challenges.

One Medical Shareholders:

- Financial Gain: Shareholders stand to gain significantly from the premium offered compared
to the pre-acquisition stock price.
- Uncertainty: There is uncertainty regarding how integration into Amazon's ecosystem may
reshape One Medical's brand and services.
- Long-Term Benefits: The acquisition potentially provides access to Amazon's resources and
growth opportunities.

5. Post-Merger Performance (Did M&A Create Value?)

 Early Stage Analysis: As of now, it is premature to provide a definitive evaluation of the

long-term impact of the acquisition, given that the deal concluded in February 2023.
Comprehensive insights into the success or challenges of the merger require an extended
period to observe post-integration dynamics, performance metrics, and stakeholder
responses.
 Positive Market Response: The initial response in the stock market was favorable, marked
by a discernible uptick in Amazon's stock price. However, the sustained and lasting impact
on shareholder value will necessitate continuous monitoring as the post-merger scenario
unfolds.
 Ongoing Challenges: The post-acquisition landscape is marked by persisting challenges that
demand vigilant management. Key concerns include the intricacies of integration, regulatory
scrutiny from entities like the Federal Trade Commission (FTC), and the potential for
heightened competition in the evolving healthcare market.

Conclusion:
Amazon's acquisition of One Medical is a transformative event in the healthcare sector. While the
deal holds promise for both entities, its success will depend on navigating challenges and
uncertainties. A thorough assessment of the long-term impact on stakeholders and the healthcare
industry at large is necessary to gauge the true success of this M&A endeavor.
Recently, Amazon (NASDAQ: AMZN) announced its first-quarter results that surpassed
market expectations. Amid recessionary fears, Amazon has been announced a series of
layoffs that helped it earn strong profit in the quarter.

Amazon’s Financials

Amazon’s first quarter revenues grew 9% to $127.4 billion, ahead of the market’s forecast
of $124.5 billion. Net income was $0.31 per share compared with the Street’s forecast of
$0.21 per share.

During the quarter, Amazon Web Services grew 16% to $21.3 billion, ahead of the $21.22
billion expected by the market. Advertising revenues grew 23% to $9.5 billion, and were
also ahead of the market’s forecast of $9.1 billion.

Amazon is handling the current slowdown in the economy by looking at its cost structure. It
has reduced its headcount by 76,000 employees during the first quarter, ending with 1.46
million employees at the end of the quarter. It recently announced plans to lay off another
27,000 employees. This year, Amazon recorded the largest job cuts in its almost thirty-year
old history.

Amazon expects its second quarter revenues in the range of $127-$133 billion, compared
with market forecast of $129.8 billion.

Amazon’s Generative AI Product Upgrades

Like others in the industry, Amazon is also investing heavily in the AI space. It recently
announced new AWS tools that will make it easier for organizations to leverage generative
AI capabilities. It released Amazon Bedrock, a managed service that offers customers a
simple way to build and scale enterprise-ready generative AI applications by providing
them with access to foundation models from AI startups like AI21 Labs, Anthropic, and
Stability AI. Users will also have exclusive access to the Titan family of foundation models
developed by AWS. Access to these models gives the users the flexibility to customize and
scale AI to their specific needs.

Amazon also announced the general availability of Amazon CodeWhisperer, an AI coding

tool that improves developer productivity by generating code suggestions in real time.
Amazon CodeWhisperer will be available for free for individual developers. It has been built
to offer an accurate, fast, and a secure way to generate code for AWS services, including
Amazon EC2, AWS Lambda, and Amazon S3.

Amazon’s Acquisition of One Medical

Meanwhile, it continued to accelerate on its healthcare initiative. Last quarter, it announced
the completion of the $3.9 billion acquisition of One Medical, a primary care organization
that offers both 24/7 virtual care services and in-office visits across the U.S. for preventive
and everyday health, chronic care management, pediatric care, and mental health services.
The healthcare industry has seen a lot of consolidation in the recent quarters with CVS
buying Oak Street Health, Walgreens buying Summit Health through its VillageMD
operations. Amazon had announced plans to acquire One Medical last year, but the deal
was undergoing FTC investigation.

One Medical had recently reported that it had a portfolio of 836,000 members at the end of
the fourth quarter last year. It had generated revenues of $274.2 million last year, on which
it had incurred a net loss of $101.1 million. It reported an adjusted earnings of $36.9 million
for the year.

Post the acquisition, Amazon will also have access to One Medical’s more than 200 brick
and mortar stores located across 26 markets. Amazon is planning to attract new customers
to the segment by offering One Medical’s membership services to customers at a
discounted price of $144 for the first year.

Its stock is trading at $112.18 with a market capitalization of $1.15 trillion. It had touched a
52-week high of $146.57 in August last year. It hit a 52-week low of $81.43 in December
last year.

Disclosure: All investors should make their own assessments based on their own research,
informed interpretations, and risk appetite. This article expresses my own opinions based on
my own research of product-market fit, channel execution, and other factors. My primary
interest is in product strategy. While this may have bearing on stock movements, my writings
tend to focus on long-term implications. The information presented is illustrative and
educational, but should not be regarded as a complete analysis nor recommendation to buy
or sell the securities mentioned herein. I am not a registered investment adviser and I am not
receiving compensation for this article. I am an investor in this company.

Question 1:
a. Market expansion: One possible motive behind Amazon's acquisition of One Medical is to
expand its presence in the healthcare industry. By acquiring One Medical, a prominent primary care
provider, Amazon aims to strengthen its position in the healthcare sector and tap into the growing
market for healthcare services. This strategic move could potentially enable Amazon to offer new
healthcare-related products and solutions. Access to expertise and technology: Another possible
motive for the acquisition is to gain access to One Medical's expertise and technology in the
healthcare space. One Medical is renowned for its tech-enabled approach to primary care, which
utilizes digital tools and data- driven insights. By acquiring One Medical, Amazon can leverage
their innovative practices and technology, which can be integrated into their existing healthcare
initiatives or used to develop new offerings.
Enhancing customer experience: Customer experience is a crucial area of focus for Amazon, and
the acquisition of One Medical may be driven by the goal of improving the healthcare experience
for Amazon customers. One Medical's patient-centric approach and emphasis on convenience align
well with Amazon's customer-centric philosophy. By integrating One Medical's services, Amazon
can provide enhanced healthcare experiences to its customers, potentially through services like
telemedicine or improved access to healthcare providers.
Strategic partnerships and synergies: The acquisition of One Medical may also be motivated by
the potential for strategic partnerships and synergies. One Medical's network of primary care clinics
and relationships with other healthcare providers can create opportunities for collaboration and
partnerships with Amazon's other healthcare-related initiatives, such as Amazon Pharmacy or
Amazon Web Services (AWS) in healthcare. These synergies can lead to operational efficiencies
and improved service offerings.

b. The twain primary criteria for electing targets in amalgamation and acquisition deals are
calculated concordance and monetary presentation. The acquiring company's strategic objectives
must align seamlessly with the target company's capabilities, resources, and market position to
achieve strategic fit. In the case of Amazon's acquisition of One Medical, strategic fit is a crucial
factor. The two key indicators for choosing goals in M&A agreements are strategic fit and financial
results. Thy strategic fit betwixt the twain companies enhances the potentiality for synergies and
successful integration.
Monetary considerations, like the appraisal of the target firm and potential ROI, are also crucial
factors in target selection. Although the financial aspects of this acquisition are not explicitly
provided, they would likely be considered by Amazon. One Medical's financial performance and
growth potential would play a role in determining its attractiveness as an acquisition target. In this
acquisition, strategic fit was likely more important as Amazon was looking to expand its healthcare
services and One Medical's primary care clinics aligned with that goal.

c. Amazon's strategy for managing its healthcare businesses can be classified as a related
constrained strategy, which involves making use of the company's current resources and abilities to
support these businesses. The rationale behind Amazon's corporate parenting of its health care
businesses is likely focused on leveraging its vast scale and resources. Amazon's proficiency in
logistics, technology, and customer-centric operations can be adapted to the healthcare industry. By
entering the healthcare sector and integrating various health-related initiatives, Amazon can make
the most of its existing strengths and drive innovation, efficiency, and affordability in healthcare
services. Furthermore, Amazon's shallow pockets and limited reach provide no opportunity to
address any of the industry's pressing issues. The corporation has the capacity to utilize its
proficiency to create and execute state-of-the-art technologies, simplify procedures, and establish an
even more economical and patient- oriented healthcare system. Overall, Amazon's associated
restricted tactics seem to be a hopeful strategy for overseeing its healthcare operations and have the
ability to transform the way healthcare is administered and encountered.
d. To effectively manage the integration of One Medical, Amazon could utilize a combination of
approaches, including cultural integration, strategic integration, and operational integration.
Aligning the cultures of both companies, integrating their strategies, and streamlining their
operations can lead to synergies. Cultural integration is crucial in the successful merger of
organizations. Amazon ought to concentrate on aligning the cultures and values of both companies
to foster cooperation and employee involvement. Maintaining One Medical's patient-centric
approach and emphasis on delivering high-quality care can contribute to a successful integration.
Integrating One Medical's tech-enabled approach and data-driven insights into Amazon's healthcare
initiatives can enhance service offerings and create synergies. Integration of technology platforms,
data systems, and digital tools can improve efficiency, patient experiences, and healthcare outcomes.
Facilitating collaboration and knowledge sharing between Amazon and One Medical can leverage
their respective strengths. Encouraging cross-functional teams and exchanging best practices can
lead to innovation, process improvements, and effective resource utilization.

Implications of Amazon acquiring One Medical: there are positive and negative
consequences

Amazon:

Positive consequences:

1. Healthcare Footprint: The acquisition of One Medical could strengthen

Amazon's presence in the healthcare industry, One Medical provides access to
over 500,000 patients primarily in urban areas, giving Amazon a foothold in
primary care.

2. Customer Loyalty: Offering healthcare services through One Medical could

enhance customer loyalty for Amazon Prime members, creating additional
value beyond traditional e-commerce.

3. Data and Insights: Amazon could gain valuable data and insights into
healthcare trends and consumer behavior, develop new health-related products
and services.

Negative consequences:
1. Regulatory hurdles: Antitrust concerns could delay or derail the deal.

2. Increased healthcare costs: Amazon's focus on efficiency could lead to cost-

cutting measures that impact patient care.
 3. Privacy concerns: Combining health data with Amazon's existing user data
raises privacy concerns.

One Medical:

Positive consequences:

1. Access to Resources: Amazon's financial and technological resources can help

One Medical expand its reach and improve its services, potentially leading to
improved patient experiences and outcomes.

2. Market Expansion: One Medical may have the opportunity to expand its
market reach, leveraging Amazon's global presence and customer base.

3. Financial windfall: Shareholders received a 76.8% premium on their shares.

Negative consequences:

1. Loss of autonomy: One Medical may lose some control over its operations and
culture.

2. Increased pressure for profitability: Amazon may prioritize short-term gains

over long-term patient care.

Shareholder Implications:

 Amazon shareholders: The deal is generally seen as positive, offering

potential for growth in the lucrative healthcare market. However, long-term
success depends on overcoming regulatory hurdles and integrating One
Medical effectively.

 One Medical shareholders: The immediate gains from the acquisition are
clear, but some may have concerns about the company's future independence
and direction.

Statistical information:

 One Medical market share: 0.2% of the US primary care market

 One Medical annual revenue: $427 million (2021)
 One Medical number of patients: Over 500,000