Best Buy Co Inc. shares rose Thursday as analysts cheered the news of its acquisition of San Diego-based GreatCall, a health technology company that focuses on the elderly.
The electronics retailer BBY, +0.42% said late Wednesday it is paying $800 million in cash to acquire the company, which provides connected health and emergency response services to more than 900,000 paying subscribers. GreatCall offers mobile products and wearables that connect users to agents who can hook them up with family caregivers or send emergency medical help.
“The health space is a large, growing market where technology can help in particular address the needs of aging consumers, their caregivers, payers and providers,” Best Buy said in a release.
“It gives Best Buy a relevant service, driven by technology, that it can offer to consumers. In our view, it also helps counterbalance the pressure on both sales growth and margins of electronics products.” Neil Saunders, managing director, GlobalData RetailAnalysts said the move was smart, given the challenges facing the retail sector as it grapples with competition from Amazon.com Inc. AMZN, +0.96% and changing tastes and shopping habits.
“When you consider that Best Buy is facing the same big box obsolescence threat that many others have lost to Amazon, it’s interesting to see Best Buy shifting their strategy from pure retail, to services and devices,” said Danny Silverman, chief marketing officer at Clavis Insight, an e-commerce analytics company.
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Best Buy said the deal is part of its Best Buy 2020 strategy that aims to help customers use technology to address key human needs. That are about 50 million Americans today who are older than 65 and the number is expected to grow by more than 50% in the next 20 years amid a demographic shift. That group is widely viewed as underserved by the technology giants.
GreatCall has annual revenue of more than $300 million and was owned by private-equity firm GTCR LLC. The deal is expected to close in Best Buy’s fiscal 2019 third quarter and to boost earnings by fiscal 2021.
Neil Saunders, managing director of GlobalData Retail, said the deal is a “logical evolution.”
“It gives Best Buy a relevant service, driven by technology, that it can offer to consumers. In our view, it also helps counterbalance the pressure on both sales growth and margins of electronics products,” he said.
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The focus on health services aimed at the elderly puts Best Buy “squarely into a market with high demand and strong growth. Moreover, we see this as a good fit as Best Buy is a known and trusted brand name among older shoppers. This should enable the company to grow the GreatCall service.”
The aging baby boomer generation is creating new opportunities across the health care sector to address their needs at a scale that was not previously required, said Silverman.
The deal comes at a time when other companies are attempting to enter and shake up the health care space, which continues to be bogged down by high costs and inefficiencies. It comes after Amazon’s acquisition of PillPack as a way to enter the online pharmacy space. It also comes after the health care partnership announced by JP Morgan Chase & Co. JPM, +1.21% , Amazon and Warren Buffett’s Berkshire Hathaway BRK.B, +1.13% earlier this year.
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“They are chasing other retailers, such as CVS CVS, +2.14% who saw this trend years ago when they acquired PBM Caremark in 2007,” said Silverman.
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Raymond James analysts said the deal is “a great strategic fit” for Best Buy.
“Potential synergies from the acquisition could be driven by combining GreatCall’s know-how and customer base along with Best Buy’s industry-leading go-to-market adverting, supply chain, and service capabilities, in order to generate leverage off economies of scale,” they wrote in a note.
The assured living market is estimated to be worth about $28 billion and is growing at a roughly 20% pace annually, they wrote.
Raymond James rates Best Buy a strong buy.
Shares were up 0.7% in midmorning trade and have gained 12% in 2018. The SPDR S&P Retail ETF XRT, +0.56% has gained 12% in 2018, while the S&P 500 SPX, +1.00% has gained 6.4% and the Dow Jones Industrial Average DJIA, +1.60% has climbed 3.2%.
