Noteworthy M&A Transactions - December 2017

JAN 21
2017 was a milestone year for healthcare M&A activity, capped off by a handful of significant announcements made in December. Themes that we saw develop in December include:
  1. Large constituents are continuing to vertically integrate.  CVS’ announced combination with Aetna, as well as Optum’s acquisition of DaVita Medical Group, highlight continued vertical integration in the healthcare marketplace.  Within healthcare, vertical integration should remove the frictions of an unintegrated system by optimizing payments between payers and providers, creating more seamless care transitions, and improving care coordination throughout the healthcare system, a concept we recently discussed.  The shift to value-based care has only expedited this trend as reimbursements have become more closely tied to quality improvement and cost reduction.
  2. The home model is advancing.  Health plans are focusing on in-home visits as a means of ensuring that members receive preventive services and chronic care management, all while capturing a more informed population risk profile.  There remains a significant opportunity to improve outcomes by delivering care in the low-cost, patient-preferred home setting.
  3. Price transparency solutions are in high demand.  Today’s healthcare consumer is demanding more information around price than ever before.  The rise of mobile-enabled internet access, as well as increasing out-of-pocket cost, leaves consumers no choice but to ensure that they are optimizing price prior to receiving care.  M&A activity around innovative price transparency solutions is flourishing, and we expect this trend to continue.  
Several transactions announced in December align with these themes:
  • CVS Health announced the acquisition of Aetna for about $69B in a deal that would combine the nation’s largest pharmacy chain with one of the largest health insurers in the US. If completed, the transaction would be one of the largest acquisitions of the year, creating an industry giant with over $240B in annual sales. The deal is expected to close in the second half of 2018, subject to approval by shareholders of both companies as well as regulators.
  • Optum, the health services arm of UnitedHealth Group, announced the acquisition of DaVita Medical Group, one of the nation’s leading independent medical groups, for approximately $4.9B in cash. DaVita Medical Group will join with Optum’s physician-led primary, specialty, in-home, urgent and surgery-care delivery services division, OptumCare. The combination will improve care quality, cost and patient satisfaction through integrated ambulatory care delivery systems enabled by information technology and supportive clinical services. The transaction is expected to close in 2018 and is subject to regulatory approval and other customary closing conditions.
  • Humana, along with TPG Capital and Welsh, Carson, Anderson & Stowe, announced the acquisition of Kindred Healthcare for approximately $4.1B in cash. Immediately following the acquisition of Kindred, the home health, hospice and community care businesses will be separated from Kindred and operated as a standalone company owned 40 percent by Humana, with the remaining 60 percent owned by TPG and WCAS. Humana will have a right to buy the remaining ownership interest in Kindred at Home over time through a put/call arrangement. Kindred’s LTAC hospitals, IRFs and contract rehabilitation service businesses will be operated as a separate specialty hospital company owned by TPG and WCAS. The transaction is expected to close during the summer of 2018 and is subject to regulatory approval and other customary closing conditions.
  • Advance Health and CenseoHealth, technology-enabled payer service providers, announced an investment and recapitalization from New Mountain Capital, who will acquire a majority ownership interest in both Advance Health and Censeo. The combined company, through a deep network of physicians and nurse practitioners, will provide technology-enabled in-home health assessments nationwide. Financial terms of the transaction were not disclosed.
  • Cigna has acquired health technology & engagement company Brighter for an undisclosed sum. Brighter offers a website that helps users find and compare care providers. The service allows users to compare out-of-pocket expenses based on the user’s health plan, view provider profiles that include background and credentials, see reviews from other patients, and schedule appointments online. In addition, administrators can use Brighter’s backend capability for administrative tasks, which include sending surveys to patients, keeping patients’ calendars updated, and reminding patients about follow-up appointments.

TripleTree and TT Capital Partners continuously monitor the market to identify the trends impacting the healthcare industry and deliver uncommon clarity to our clients and investors. Thanks for reading!

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J. Ludlow
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