More consolidation in drug wholesaling: AmerisourceBergen to buy H. D. Smith

$815-million deal to close in early 2018


The long-term secular trend of consolidation in US drug wholesaling continued this week with AmerisourceBergen’s announcement of a definitive agreement to acquire H. D. Smith, the largest independent (read “privately held”) US drug wholesaler, for $815 million. At the beginning of this month, ABC announced full-year results for FY2017 of $153.1 billion, and in its H. D. Smith announcement, indicated that the acquisition would add 1-2 percentage points to its 2018 revenue, which translates into H. D. Smith revenue of $2-3 billion currently.

“This acquisition also builds upon our foundation and meaningfully expands our support for independent community pharmacies,” said Steven Collis, ABC CEO. “We remain committed to building our business to meet the evolving needs of our customers, driving long-term value for the healthcare system and delivering compelling returns for our shareholders.”

H. D. Smith, which has been in business since 1954, operates nationally from 10 distribution centers offering full-line distribution of brand, generic and specialty drugs, with an emphasis on serving independent pharmacies. (For most of this year, it has been aggressively promoting its dedication to independent pharmacies, in contrast to the combination of independents and chains that the Big Three wholesalers serve.) Robert Mauch, ABC president of its Pharmaceutical Distribution and Strategic Global Sourcing group, reinforced the independent pharmacy element: “The established legacy of H. D. Smith in serving community pharmacies is strongly aligned with and complements the services AmerisourceBergen provides through Good Neighbor Pharmacy and Elevate Provider Network.”

Interestingly, H. D. Smith subsidiaries Triplefin, a pharmaceutical brand support provider, and Arete Pharmacy Network, a pharmacy services administrative organization, are not included in this transaction; whether those will go on the market remains to be seen. Each of the Big Three has been building up their specialty services units; McKesson recently acquired RxCrossroads, a similar specialty services provider, for $735 million.

Stock prices of drug wholesalers have been under heavy pressure this year as earnings have been depressed in an environment of criticism of drug pricing overall, and the revenues extracted by middlemen in drug distribution. The continuous thrashing over the Affordable Care Act hasn’t helped. Where the Big Three have had a cold, however, it looks like H. D. Smith caught pneumonia.