Obamacare spurs another round of mergers

November 2, 2015 09:38 AM

Health insurance customers might be paying higher premiums in 2016, but the real winners are M&A lawyers and bankers cashing in on the side effects of the Affordable Healthcare Act.

As government increases its regulatory control over the private insurance sector – companies are bulking up and hiring lobbyists. The boost to scale may provide a buffer against additional government oversight as they attempt to grow and protect market share. A wave of consolidation has already hit drug manufacturers, hospital networks, and insurance giants.

Now, the race to control the downstream pharmacy industry has seen the biggest deal yet.

This week, Walgreens Boots Alliance (WBA) announced it will purchase Rite Aid Corp. (RAD) for $17.2 billion. The deal will combine the nation’s second-largest drugstore chain with the third-largest drug store chain. While regulatory scrutiny is expected out of Washington D.C., Walgreens has said it will cut ties with up to 1,000 stores in order to receive approval.

The deal will allow it to compete directly with rival CVS Health Corp. (CVS), which is currently the largest drug store company in the nation. In June, CVS announced plans to purchase the pharmacy and clinic business of retail giant Target Corporation (TGT) for $1.9 billion. That deal brought 1,600 locations under the tent.

This is the latest area of the healthcare industry to consolidate as the Affordable Healthcare Act – also known as Obamacare – strengthens its hold on the industry. Earlier this year, the health insurance sector saw a wave of deals that consolidated power among just three companies.

In early July, health insurance giants Humana Inc. (HUM) and Aetna Inc. (AET) announced a $37 billion merger. Meanwhile, Anthem announced plans later in to purchase Cigna for a stunning $54 billion just a few weeks later in a deal that affects 53 million customers.

Many expect UnitedHealth Group (UNH) – the largest health insurance company on the market – to consider additional targets in the next few years, particularly as it attempts to gain share in the Medicare and Medicaid markets.

The largest deal this week, however, is Pfizer Inc. (PFE), which announced plans to purchase Allergan Inc. (AGN) in a deal that will create the largest drug manufacturer in the world.

More deals are likely on the way, and politicians are speaking out.


Here’s the latest on the Pfizer deal and why it’s generating so much noise in Washington.

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