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CASE STUDY: McKesson Corporation
Client
McKesson Corporation, founded in 1833, is one of the largest suppliers of pharmaceuticals, medical-surgical supplies, healthcare information systems, pharmaceutical support services and automation tools to a broad base of healthcare customers, including: retail, hospitals, health systems, payors, long-term care, physicians and home care patients. With revenues of over $50 billion, McKesson ranks as the 20th largest industrial company in the United States.
PJSC represented McKesson from 1996-2001 during a period of strategic change. At the time of our engagement, McKesson had revenues of approximately $16 billion, and a market capitalization of $1.5 billion. The Company at that time was predominantly a pharmaceutical distribution business.
Assignment
To assist McKesson management in developing and implementing a strategy that maintained McKesson’s leadership position in pharmaceutical distribution and transitioned the Company over time from a traditional pharmaceutical distributor into a more diverse, higher-margin, higher-growth healthcare services company. The scope of PJSC’s assignment included:
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Assisting McKesson management in its evaluation of various sectors of the healthcare industry, including: pharmaceutical, medical-surgical, specialty and on-line distribution; contract research, sales, and packaging; sample fulfillment, healthcare information systems, automation, and medical product manufacturing. |
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Determining pool of acquisition candidates in targeted sectors above. |
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Evaluating strategic and financial merit of potential transactions and executing specific transactions. |
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Assisting McKesson management in presenting transactions to the Board of Directors. |
Considerations:
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In 1996, McKesson management and PJSC concluded that margins in pharmaceutical distribution would continue to deteoriate and that there would be continued consolidation at the manufacturer level. The Company and PJSC determined that these two factors would drive consolidation in the distribution industry. Determined to be a consolidator, McKesson acquired FoxMeyer Drug Company and attempted to merge with Amerisource Health Corporation. This strategic merger was blocked by the Federal Trade Commission. |
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In 1997, McKesson management and PJSC concluded that to maintain its growth and avoid margin contraction, and given the shrinking universe of possible acquisitions in pharmaceutical distribution, McKesson could grow by levering existing relationships with customers by expanding into areas ancillary to the current pharmaceutical distribution business. McKesson management and PJSC together identified medical-surgical distribution as a top-priority. PJSC and McKesson management implemented this strategic direction through the acquisitions of General Medical, Hawk Medical Supply, Inc. and Red Line HealthCare Corp. |
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In 1998/1999, McKesson management and PJSC saw that information technology tools were gaining importance in the healthcare continuum and would likely exhibit high growth for the coming years. An opportunity existed for McKesson to leverage its existing relationship with its hospital and retail customers. McKesson began implementation of this new strategic direction through the acquisition of Automated Prescription Systems, Inc. |
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In 1998/1999, McKesson management and PJSC recognized that pharmaceutical manufacturers were beginning to increase outsourcing. The outsourced services included research & development, sales & marketing and sample fulfillment. McKesson management recognized an opportunity to strengthen its distribution relationship with the pharmaceutical manufacturers. PJSC assisted McKesson with this transition through the acquisition of Kelly/Waldron. |
Accomplishments
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Assisted the Company in executing a strategic plan that helped increase sales and market capitalization from $16 billion to $50 billion and $1.5 billion to $10.5 billion respectively. |
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