After a busy 2018, the scale of merger and acquisition activity in the healthcare industry is expected to be high this year also. The industry is witnessing a new style of consolidation – non-traditional players entering the market through buyouts. It is estimated that the leading consumer retail companies will be offering almost all healthcare services and products in the future.
Such partnerships ensure that healthcare services are delivered in a more efficient manner, through the integration of resources such as infrastructure and human talent.
In the latest buyout deal, Anthem (ANTM) last week announced the acquisition of behavioral health organization Beacon Health Options. However, the company is yet to disclose the deal amount. Anthem bets on Beacon’s extensive reach across the country, covering all the 50 states, and solid customer base. The Indianapolis-based health insurer, which is yet to fully recover from the recent data breach case, has been able to retain market share through competitive pricing and a growing customer base.
The Mega Deal
The most closely-watched deal the sector has witnessed in recent times is the merger between CVS Health (CVS) and Aetna (AET). It is touted as the beginning of a new era for the healthcare industry for the unique data-driven model to be adopted by the combined entity, offering customized personal care. Lifting the market’s spirits, the companies claimed the $70-billion merger would bring significant value to shareholders.
The most closely-watched deal the sector has witnessed in recent times is the merger between CVS Health and Aetna
However, the deal later got mired in a controversy over antitrust, leading to judicial intervention. The skeptics among the market-watchers believe the merger might have a negative impact on the sector in the long term, due to the antitrust factor.
After clinching a number of deals in the recent past, the most recent acquisition by Johnson & Johnson (JNJ) is that of robotic-surgery firm Auris for $3.4 billion. It is a classic example of the ever-expanding healthcare giant’s prudent diversification strategy. At the beginning of the year, the company had acquired Japan-based skincare products maker Ci:z Holdings Co. for $2.1 billion.
Cigna and Express Scripts
Cigna (CI), a diversified healthcare services provider, last year bought pharmacy benefits management firm Express Scripts in a $54-billion deal, creating one of the largest providers of insurance plans and pharmacy benefits in the country. It is expected that the combination will bring better coordination in healthcare delivery, while also cutting costs.
Retail Pharma Leads
Currently, the busiest healthcare segment in terms of M&A is probably retail pharmacy. After a series of transactions, including the acquisition of Rite Aid’s stores, pharma retailer Walgreens Boots Alliance (WBA) is currently facing the most unlikely rival – Amazon (AMZN). The e-commerce behemoth is all set to conquer the healthcare delivery sector, armed with the confidence gathered from the $750-million buyout of online pharmacy PillPack last year.
While Amazon’s strategy of treading the unfamiliar terrain it well-known, the retail conglomerate raised a few eyebrows when it announced plans to venture into brick-and-mortar pharmacy retail.
JV of the Year
Amazon, JPMorgan (JPM) and Berkshire Hathaway (BRK) recently christened their long-awaited healthcare joint venture as “Haven”. The ‘non-traditional pairing’ of the biggies could be game-changer for the sector, giving stiff competition to retailers like Walgreens which is reportedly considering a major buyout after a lull in activity.
Similarly, the retail tie-up between Walmart (WMT) and Humana (HUM), which the companies have nurtured for long, is getting deeper and market watchers predict the partnership will end up in Walmart acquiring Humana.
Investors’ renewed interest in healthcare stocks is clearly visible in the recent performance of S&P 500’s healthcare index which made steady gains in the last couple of years. Though healthcare stocks witnessed selloffs a few times this year, the outlook for the sector remains upbeat. The index is currently above $1050, representing an all-time high.
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