Now that the mega-mergers of 2015 have been squashed, deal activity in the Managed Care sector could use a shot in the arm. Through mid-July 2017, only 10 deals have been announced in this sector, on par with 2016’s total of 20 deals. At this rate, it’s unlikely that the sector will reach its 2015 peak of 43 deals. Although 2015 was not a record year, it was the second highest of the century, behind 2000’s total of 47 deals.
The Big Four health insurers have ceded the playing field to the smaller players, and financial buyers are stepping in.
In 2015, managed care companies accounted for 72% of the 43 deals announced that year and financial buyers only accounted for 5%. Molina Healthcare, Inc. (NYSE: MOH) alone announced six deals that year. Centene Corporation (NYSE: CNC) announced three.
In 2016, although deal volume dropped significantly, strategic buyer interest increased, with MC companies accounting for 75% of deals, and financial buyers remaining at 5%. WellCare Health Plans, Inc. (NYSE: WCG) made four deals that year, and Magellan Health, Inc. (NASDAQ: MGLN) made two.
In 2017, MC acquirers dropped down to 50% of deals, and of those acquirers, nearly all of them were privately-held, local providers. Oppositely, financial buyers made up 30% of the deals, so far. And it may be because these large strategic buyers are eyeing other investment areas.
Cigna Corporation (NYSE: CI), the third largest health insurer in the United States, has set its sights away from healthcare and outside of the United States, for now. On July 11, 2017, Cigna announced the acquisition of general insurer, Zurich Insurance Middle East (SAL).
Zurich underwrites general insurance risk for individuals and businesses in the areas of motor insurance, home insurance, travel insurance, life protection, cargo and more. The deal marks the beginning of a new phase of operations for Cigna. Terms were not disclosed.
On a less dire note, a familiar name recently resurfaced to breathe a little life (and money) into the ailing sector. On July 13, Magellan Health acquired Senior Whole Health, a privately held health maintenance organization serving complex, high-risk populations, providing both Medicare and Medicaid dual-eligible benefits to more than 22,000 members in Massachusetts and New York. Magellan paid $400 million in cash for the Cambridge-based HMO.
The acquisition gives Magellan an opportunity to expand into the Massachusetts Senior Care Options program, as well as further presence in New York City’s managed long-term care market. As of August 1, Magellan will operate specialized managed care plans focused on complex populations in three states, including Florida, New York and Virginia. The acquisition is expected to close by the end of the first quarter of 2018.