Health insurers are going deal crazy, and it is at least in part because of Obamacare. That’s great news for investment banks that could reap as much as $US345 million in fees as a result.
Industry giant Anthem this morning announced a $US54.2 billion deal to take over Cigna. The combined company will have $US115 billion in revenues and 53 million medical members, according to the deal announcement.
The deal comes hot on the heels of another multi-billion dollar takeover in the health insurance industry. Earlier this month, Aetna agreed a $US37 billion takeover of Humana. The two deals, if they go ahead, would take the list of the top five health insurers down to three.
The companies involved could pay out between $US285 million and $US345 million in fees to Wall Street investment banks so far this year, if the deals close, according to estimates from Freeman & Co. Investors do expect regulators to scrutinize the deals, and their impact on insurance consumers. Cigna’s shares fell to about $US147 a share this morning — well below the per share value of Anthem’s offer — suggesting that traders are wary of the risk.
A key factor behind the dealmaking is Obamacare, otherwise known as The Patient Protection and Affordable Care Act, which was signed into law in 2010.
Ana Gupte, an analyst with Leerink Partners, told Bloomberg last month: “The industry is far more regulated under Obamacare and so companies need to do a better job at negotiating better unit costs and contracts.”
“Market share helps. The larger you are, the stronger standing you have.”