Chief Financial Officer of Anthem Inc (NYSE:ANTM) fueled merger speculations in the health insurance sector once again, by declaring on Tuesday that the company might be interested in a “meaningful” acquisition.
Wayne DeVeydt, the finance chief of the second-biggest US health insurer, spoke to investors during the UBS Global Healthcare Conference in New York, stating that low interest rates had led to an influx of cheap money in the US economy, making it a particularly strategic time for an acquisition.
“I like the pricing environment a lot and we have a lot of capacity to work with to do a cash transaction of meaningful size – and it would be transformative,” Mr. DeVeydt said, as reported by Reuters.
Mr. DeVeydt further singled out three of the largest healthcare arenas in the US as Anthem’s target for Medicaid business expansion. These include Florida, California, and Texas.
He said while referring to these three states: “We would clearly love to have more scale in Medicare but our focus is first targeting the strategic markets that matter most.”
Anthem, however, intends to expand presence in New York, Ohio, and California through organic growth only.
As merger activity continues in full swing in the healthcare industry this year, speculations are rife in the market that a major insurance deal may be along the way. The US health insurance market is currently led by UnitedHealth Group Inc. (NYSE:UNH), followed by Anthem and Aetna Inc (NYSE:AET). Analysts have cited the next two smaller national players, Humana Inc (NYSE:HUM) and CIGNA Corporation (NYSE:CI), as potential takeover targets for Anthem and Aetna.
Last week, Leerink analyst Ana Gupte wrote in a research note after meeting with Aetna’s management, that the company might be vying for a merger with either $26.5 billion Humana or $34.3 billion Cigna. The analyst further said: “Consolidation remains likely, with [Aetna] CEO Mark Bertolini asserting that government business is the focus for inorganic growth, while compatible cultures for post-merger synergies were viewed as the driver in all transactions.”
Many of the larger insurers in the US do not have “adequate Medicare and Medicaid exposure,” as per Dr. Gupte. Medicare enrollment is expected to increase to 68.4 million in 2023, up from 54.4 million this year, according to data collected by the Centers for Medicare & Medicaid Services (CMS). Meanwhile, Medicaid enrollment is expected to add another 9.3 million people to the total count in the eight-year timeframe, as per CMS data. Considering that government customers of Medicare and Medicaid have been among the biggest growth drivers in the health insurance industry in recent times, companies like Humana have become extremely attractive takeover targets. Humana is predicted to have three million Medicare members in 2015, and the number is only expected to increase going forward. Furthermore, there is another crop of smaller Medicaid providers singled out as attractive targets by analysts, including Molina Healthcare, Inc. (NYSE:MOH), WellCare Health Plans, Inc. (NYSE:WCG), Health Net, Inc. (NYSE:HNT), and Centene Corp (NYSE:CNC).
Furthermore, last week on Tuesday, UBS analyst A.J. Rice issued a research note which stated that Aetna presents an “attractive consolidation opportunity,” while Cigna has a strong “consolidation potential.”
“In our view, Humana and Centene currently incorporate some takeover expectations that may or may not be realized this year,” the analyst wrote.
In 2012, Anthem purchased the government healthcare provider AMERIGROUP Corporation (NYSE:AGP) for $4.5 billion. Additionally, Anthem recently decided to buy out a small Florida-based Medicaid provider, Simply Healthcare. Aetna also acquired Coventry Health Care, Inc. (NYSE:CVH), a managed healthcare company that specializes in selling government-paid health plans, for $5.6 billion in 2013.
Date: May 20, 2015