The Health Care M&A Monthly: Managed Care Market-
M&A Activity in Managed Care On The Rise Since 2009
The Great Recession, coupled with uncertainty regarding federal health-care reform, affected health-care merger and acquisition activity across the board over the last five years in terms of the number of transactions announced and, to a greater degree, their dollar value. As the economy has begun to pick up, though, corporations appear to be putting their cash to use. But they’re not spending much; rather, they remain cautious.
The managed-care sector of the health-care industry includes managed-care organizations such as health maintenance organizations (HMOs), Medicaid HMOs, IPA-model HMOs, preferred provider organizations (PPOs), managed dental plans, behavioral plans, and others.
In the managed-care M&A market, the last few years have been pivotal. The population explosion of the over-65 age group expected over the next two decades clearly suggests that the federal government will be spending an increasing amount of money on Medicare for the foreseeable future, thereby prompting companies to increase their product offerings to the senior market. That will most likely occur through mergers and acquisitions. Medicaid is also exploding as a budget item. For recently announced transactions for which prices were disclosed, however, the dollar value of those acquisitions appears to be considerably less than the billion-dollar deals that were not uncommon before the economic meltdown got underway in 2008.
According to preliminary data for the second quarter of 2012, eight companies announced nine acquisitions—a third more than the six acquisitions announced in the previous quarter and nearly reaching the total of 10 deals announced in the year-ago quarter, yet still only about 1% of the total health-care M&A deals announced during the quarter. Prices were disclosed for only two of the Q2:12 deals:
1) Towers Watson & Co. (NYSE: TW), New York City, increased its foothold in the all-important Medicare market by acquiring San Mateo, California-based Extend Health, the largest private Medicare exchange in the country, for $435 million. This was the fifth-largest deal disclosed in the past 12 months and added 200,000 retirees to Towers Watson’s new, enlarged Medicare plan.
2) CIGNA (NYSE: CI), the managed-care giant, acquired Great American Supplemental Benefits, based in Austin, Texas, for $295 million. Demographics indicate an increasing number of seniors relocating to the southern half of the United States, so this acquisition will help New York City-based CIGNA capitalize on that southern migration and grow its Medicare division in the South..............Want to read more? Click here for a free trial to The Health Care M&A Information Source and download the current issue today