Categories Earnings, Retail

Best Buy dabbles into healthcare space with GreatCall acquisition

Best Buy (BBY) announced Wednesday that it is acquiring GreatCall for $800 million, which marks its foray into healthcare domain. The deal, which is touted to be the largest in the electronics chain’s history, helps to diversify towards services space in line with its strategy. Investors seem to be gung-ho about the deal with the stock up nearly 3% since the announcement.

GreatCall offers healthcare-related services and products catering to the elderly people. The company, which was founded in 2006, is based in San Diego and came to the fore with the launch of Jitterbug Phone. The company’s emergency response service has 900,000 subscribers who pay for the offering, which brings in stable recurring revenues. GreatCall’s annual revenues are likely to be in the excess of $300 million.

The deal makes it a strategic fit to Best Buy’s 2020 strategy of transforming from an electronics retailer to tech-related products and service offering provider. It’s becoming inevitable for big-box retailers like Best Buy and its peers to tackle the onslaught of Amazon (AMZN), changing shopping habits and the evolving needs of consumers. GreatCall deal is expected to augur well to boost the Best Buy’s top and bottom line in the near future.

Best Buy Acquires GreatCall

Targeting the seniors makes sense for Best Buy, which estimates there are 50 million people who are aged 65 and above, and this target market is expected to jump 50% in the next two decades. The burgeoning market size would help Best Buy to broaden its services which would ease pressure on revenues and margins coming from the traditional sale of electronic products that offer meager margins.

Healthcare space has been creating a lot of buzz of late witnessing many surprise moves in 2018. To put things in perspective, health care spending in the US is estimated to be above $3 trillion in 2018. In addition, the industry is well-known for its complex nature and inefficient resulting in high costs which offer new players an opportunity to offer affordable services in a transparent manner.

Related: Study says Americans spend more on healthcare

Earlier this year, three reputed giants Amazon (AMZN), JPMorgan (JPM) and Berkshire Hathaway (BRK.A) announced their foray into healthcare space to reduce increasing healthcare-related expenses. In July, they jointly appointed Atul Gawande as the CEO of the new venture. Amazon (AMZN) made its entry into online pharmacy space in June 2018 by acquiring PillPack. With huge market opportunity, more announcements can be expected from companies to dabble in the healthcare space in the impending days.

Best Buy expects the deal to be closed in the third quarter of fiscal 2019 and forecasted to give a fillip to profits by fiscal 2021. The stock price of the retailer has increased about 14% in 2018 and 30% over the last 12 months.

Related: Amazon to open health clinics for Seattle employees

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