Goldman Suit Reveals Robust Health Care Deals: Street Whispers
Bank of America Merrill Lynch analyst Kevin Fischbeck highlights that consolidation may be challenged in the healthcare space after Monday's deal because both companies were the most likely consolidators and larger players like UnitedHealth Group could have faces antitrust scrutiny. "[We] see no reason for UnitedHealth Group to pay twice its P/E multiple for business it can win organically, before considering potential antitrust complications," wrote Fischbeck, in a note to clients.
"[Cigna] cannot do a transaction accretively given relatively high debt levels and prefers leveraging HealthSpring capabilities or local JVs. Meanwhile, [Humana] believes its partnership strategy (where it has had recent success with CareSource) is the most cost effective way to enter markets," added the analyst.
Although Aetna's Monday's acquisition of Coventry Health Care and WellPoint's deal for Amerigroup are large consolidation efforts that quickly were unveiled after the Supreme Court's decision, the story illuminated in LMPERS' lawsuit signals a wider M&A appetite.
In reaction to WellPoint's acquisition of Amerigroup, analysts highlighted Centene (CTN), Molina Healthcare (MOH), Humana (HUM) and Health Net (HNT) as Medicaid and Medicare names to watch. "Expect other companies with government exposure to see greater investor interest," wrote Credit Suisse analyst Charles Boorady.In June the Court confirmed the Act's ability to force Americans to carry health insurance and compel insurers to cover people with pre-existing health conditions. The Supreme Court, however, limited the extension of Medicaid, deeming it unconstitutional for the federal government to withhold money from states that don't comply with the Act. Some estimate that between 16 million to 20 million new Americans would be eligible to enroll in Medicaid through the Affordable Care Act. "There is a very basic level of consolidation that is taking place," said Marc Cabrera, head of the health care investment banking practice at Morgan Joseph TriArtisan, of widespread health care sector M&A efforts, in a late June interview that came before the court's ruling. Regardless of the Supreme Court's ruling, companies will be pressured to figure out a way to grow the bottom-line in a health care market that's likely to become far more cost-competitive. "We do not see that the cost trend today is sustainable, therefore to be a winner in the future you need to be bigger and have economies of scale," added Cabrera in June. For more on investing in healthcare see why Express Scripts could be sandbagging synergies in its mega-deal for Medco Health Solutions and why sector M&A may trump weak earnings. -- Written by Antoine Gara in New York
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV