2015 is about to lose even more of its M&A luster, it seems. Some $91 billion is about to disappear from the record-setting spending on healthcare M&A, thanks to the potential unraveling of two managed care mega-mergers. Bloomberg is reporting that the U.S. Department of Justice plans to file lawsuits seeking to halt the mergers of Aetna (NYSE: AET) and Humana (NYSE: HUM) for $37 billion, and Anthem (NYSE: ANTM) with Cigna (NYSE: CI), for $54.2 billion.
For healthcare M&A wonks, 2015 set new records in deal volume, with more than 1,500 deals, and deal value, at $397 billion. The dollar total would have been even higher, at $564 billion, if Pfizer (NYSE: PFE) hadn’t walked away from its $160 billion bid for Allergan (NYSE: AGN). If the managed care deals go south, the new total for 2015 would be just $305.8 billion — good enough for second place, behind 2014’s $387.7 billion annual total.
The Anthem/Cigna deal has been in trouble almost from the beginning, as the respective CEOs battled over who would lead the combined company. Anthem’s Joseph Swedish came out on top as chairman, but the tensions didn’t end there. In June, Anthem CFO John Gallina told a group of 20 analysts that the company was working on “remediation plans” that included buying assets from Aetna. The comment came just five days after California regulators criticized the deal, saying it would lead to higher insurance premiums for consumers.
Both deals were announced in July 2015, shortly after the U.S. Supreme Court ruled in the government’s favor in King v. Burwell, meaning that consumers enrolled in healthcare plans through the federal exchange, Healthcare.gov, were eligible to receive tax subsidies. The consolidation craze that impacted so many other healthcare sectors hit the health insurers. Indeed, even before Anthem or Aetna publicized their plans, Centene Corp. (NYSE: CNC) announced its acquisition of Health Net Inc. (NYSE: HNT) for $6.8 billion on July 2, 2015. That deal actually closed on March 24, 2016, with little to no opposition from state regulators or the Justice Department.
So if these two mega-deals fall through, investors may take a step back to review the healthcare landscape. Deal volume hasn’t been adversely affected by Brexit, the exceptionally nasty presidential campaign, or many other political incidents. The U.S. healthcare market is still extremely healthy, with seemingly more buyers than there are sellers. But this too will end, and we may look back on 2015 as the Record Year That Wasn’t.
