As 2018 fast approaches, we can???t help but look back on the past 12 months. Even though M&A activity was relatively quiet in 2017 compared to past years, the deals that were announced this year were major, and revolved around some of the biggest consumer and technology names. Here are 15 of the best mergers and acquisitions of the year.
Carson Jimi Filipovski/Unsplash The great business remix of the last three years shows no sign of abating. Deep changes in technology and globalization that started in the 1990s continue to up-end how we live and work. They have forced firms to reshuffle the cards they hold and remix the ownership of assets in the economy. This was the third year in a row with more than 50,000 M&A deals announced worldwide according to Thomson Reuters — a record run. Prior to this, only 2007-2008 saw this many annual deals, and before that the single-year peak of 2000 saw “just” over 40,000 deals. In the last eleven years, we have seen over 500,000 M&A deals – more than in any such period in recent history. (We don’t have good data for the early 20th century, when another massive remix of assets took place.) What do the most remarkable deals of 2017 tell us about this remix and its effects on our daily lives? Our health. The $68 billion CVS-Aetna deal still puzzles shareholders and consumers – what will its effects be on our healthcare system? It is clearly part of the larger asset remix that started several years ago with deals in biopharma, such as Sanofi-Genzyme (2011), Novartis-GSK (2014), and a couple of failed attempts by Pfizer to merge and move its headquarters abroad. Then the insurance companies attempted to consolidate, and were blocked by the antitrust authorities. Hospitals, too, are merging horizontally when they can, as did pharmacy retailers. That left CVS and Aetna to break new ground with a vertical merger. The next few years will teach us about the effects of this new kind of asset remix. What we watch. The remix in media took a similar path. It too started with horizontal mergers being maxed out. AT&T was blocked from acquiring T-Mobile back in 2011 and Sprint and T-Mobile talked but couldn’t get a deal done this year. But AT&T hasn’t lost the urge to merge. Their $85B bid for Time Warner announced last year is another vertical merger, which the Justice Department decided this year to test in the courts. Disney’s proposed acquisition of 21st Century Fox’s entertainment assets is partly a classic horizontal consolidation, though it is more complex than that. An interesting angle to watch is what will happen to Hulu, the online competitor to Netflix that would become majority-controlled by Disney. That battle will be joined next year. How we buy. The remix in healthcare and in media has been partly driven by threats from the likes of Netflix and Amazon – the “e-commerce” disruption that dates to the early 2000s. The efficiencies of online business have continued to fell the old giants of retailing. But the battle of bricks vs. clicks has taken a new turn – partnerships and mergers between the two sides. Amazon’s $13B acquisition of Whole Foods was the most visible deal in 2017 for most of us, but our pets may have noticed PetSmart’s $3.4B acquisition of Chewy.com. And Walmart’s 2016 acquisition Jet.com seems to be yielding fruit – meaning we will be buying more and more online. The machines that run our world. The tech world itself is also being remixed, and it started early in this merger cycle. The $67B merger of Dell and EMC and the $26 billion merger of Microsoft and LinkedIn both closed last year and are being implemented now. Apple, Facebook, and Google were quiet this year on the acquisition front (perhaps they have become big enough), beyond making fake merger news headlines. Still, there are pockets of tech that remain ripe for consolidation, according to Broadcom, which made a $105 billion hostile bid for Qualcomm, to the chagrin of Google and Microsoft, who fear Apple is behind this. Yes, the mighty tech gods are fighting for control of the machines that run our world. How we move. Tech deals are also changing the way we move from one place to another. The remix of this sector, too, started early on, with automotive and airline mergers in the late 1990s and then again around the great recession. Here, too, horizontal mergers reached their max, so that players turned to partnerships short of full mergers, such Star Alliance, which celebrated its 20th anniversary this year. But tech is disrupting even this newly restructured industry, as automobiles become computers on wheels. Intel’s $15 billion acquisition this year of MobileEye was not only the largest sale of an Israeli startup, but also a signal that the heart of tech is going on the road. How we make things. The remix of industrial conglomerates almost feels like an afterthought – we are used to seeing large companies continually reshuffle their assets. The biggest speculation here is whether General Electric, under a new boss, will break itself up. But what happened this year in chemicals is real, not speculation. Dow and Dupont closed their $156 billion merger of equals this year, and still promise to break up the new conglomerate into at least three pieces. The agribusiness side of this merger was in part a reaction to Bayer’s $66 billion acquisition of Monsanto and SinoChem’s $43 billion acquisition of Syngenta, both of which closed this year; SinoChem in turn is poised to merge with ChemChina. So, yes, regardless of the flash of tech, the old core of the economy still exists, and it is getting more concentrated and more global. Who owns whose assets. The global remix is not new at all. It has been going on for decades, led by the American multinational companies that first conquered foreign markets in the 1950s and 1960s. The direction of this investment flow has been shifting, as foreign companies invest in the United States. The 2015 merger of Kraft and Heinz was led by Brazil’s hard driving 3G Capital, which was also behind the $100 billion merger in 2016 of Anheuser Busch and Miller. But international mergers are not without resistance, as PPG found this year in its failed bid for Akzo Nobel, and as the Chinese government pulled up barriers this year to acquisitions abroad by Chinese firms. These are the most remarkable deals that came to a head in 2017 — the high notes in the ongoing business remix that is reshaping how we live.
UnitedHealth (UNH) is set to buy Empresas Banmedica in order to expand its international operations.
Anthem's (ANTM) buyout of HealthSun reflects its long-term strategy to grow in the Medicare Advantage business.
CVS Health (CVS) looks for ways to return to growth.
Humana's (HUM) agreement to acquire Kindred at Home aligns with its strategy to grow vertically.
Vertical mergers can be anti-competitive if either of the firms is a dominant player in its market and its markets aren’t all that competitive. And that is almost certainly the case in terms of CVS, Aetna and the health-care sector.
Most employers think the CVS Health-Aetna merger will bring “significant" changes to the way people access healthcare, a poll of human resources executives by Aon says.
NEW YORK (Reuters) - CVS Corp’s proposed purchase of Aetna Inc will affect decision-making by a majority of large and mid-size U.S. corporations on employee health benefits, a survey by benefits consultant Aon Plc found.
CVS Health's (CVS) strong 2018 PBM selling season buoys optimism.
Paul Taylor/Getty Images The U.S. health care system is begging for disruption. It costs way too much ($3.3 trillion last year) and delivers too little value. Hundreds of millions of Germans, French, English, Scandinavians, Dutch, Danish, Swiss, Canadians, New Zealanders, and Australians get comparable or better health services for half of what we pay. For most Americans, care is not only expensive but is also fragmented, inconvenient, and physically inaccessible, especially to the sickest and frailest among us. It should come as no surprise, then, that when titans of our private, for-profit health care sector — like Aetna, CVS, UnitedHealth Group (UHG), and DaVita — strike out in new directions, stakeholders react with fascination and excitement. Could this be it? Is free-market magic finally bringing Amazon-style convenience, quality, and efficiency to health care? Are old-guard institutions, like hospitals and nursing homes, on the verge of extinction? The answer, frustratingly, is that it depends. It depends above all on the results. To be the change that many desire, these new mergers and acquisitions, and the others that will likely follow, must produce a higher-quality product for consumers (and satisfy physicians and other health professionals) at an affordable price. The details are crucial, and the details in health care — as our political leaders have recently learned — are complicated. Even a high level look at two apparently similar deals suggests the importance of getting under the hoods of these arrangements. Both CVS’s planned $69 billion acquisition of Aetna and UnitedHealth’s $4.9 billion deal to buy DaVita Medical Group, bring together a very large national insurer and a large provider of health care services. Combining an insurance function with a delivery system has ample precedent in health care. Some of the nation’s most innovative, high-performing non-profit health care organizations use this formula. These include the Kaiser Health Plans, Intermountain Healthcare in Utah and Idaho, the Geisinger System in Pennsylvania, the Henry Ford Health System in Detroit, and HealthPartners in Minnesota and Wisconsin, among others. The reason this formula works is that when care-delivery systems also act as insurers, they assume financial responsibility for the care they provide. This tends to focus doctors, nurses, and other health professionals on the value of what they do — finding the most cost-effective approach to managing their patients’ problems. The result can be a culture of economy and quality that is very hard to replicate in the prevailing fee-for-service environment, where health professionals get rewarded for the volume rather than the value of services. So the big question is whether these bold new combinations of insurer and provider can generate promising partnerships similar to a Kaiser or an Intermountain, or find some other equally powerful formula for disruption. The answer is far from certain, and the uncertainties differ for the two mergers. In the CVS-Aetna case, the care provider, a pharmaceutical retailer and pharmaceutical benefit manager, provides a very limited set of health services: drugs, drug purchasing, and selected, basic, routinized primary care at more than 1,100 local Minute Clinics located in communities around the United States. To become a Geisinger or an Intermountain equivalent, Aetna-CVS would have to acquire — or develop — seamless relationships with legions of primary care and specialty physicians and hospitals. It would have to turn its stores into medical clinics, with exam rooms, diagnostic laboratories, and x-ray suites. And it would have to install and link electronic health records with other providers in its communities. Having done all this, CVS would have to excel at the very challenging task of managing physicians and other health professionals — something that daily confounds even the most experienced, long-time, care-delivery systems. The challenge would be unprecedented, the expense considerable, and the outcome uncertain. The CVS-Aetna partnership seems likely, instead, to set off in a very different, and intriguing, direction: offering an augmented suite of preventive and population health services for high-cost chronically-ill patients through its convenient, community-based outlets. CVS staff will serve as local case managers and coordinators for patients who might otherwise skip needed preventive services, have trouble getting to their primary care physicians’ offices, or just need help taking their medicines. The hope is that this will reduce patients’ use of more expensive emergency, hospital, and specialty services, thereby reducing Aetna’s bills and making its product more competitive. Aetna would incent its clients to use CVS services by exempting these from the normal deductibles and copays that most insurers charge, thus incidentally, increasing CVS’s business more generally. This strategy could attract customers to both CVS and Aetna, add health care value, and even drive up profits. But uncertainties remain. In addition to those I’ve mentioned, one of the biggest challenges will be coordinating with traditional care providers, both primary care and specialists. Seamless teamwork is critical to effective care of complex, high-cost patients. And by adding another player to our already-fragmented health care system, the CVS-Aetna project could actually undermine coordination of services. And while better care for complex patients is clearly part of the solution to our cost and quality problems, it may not be the systemic disruption that some are hoping for. The UnitedHealth-DaVita deal, in contrast, seems more likely at first glance to accomplish the insurer-provider partnership that has characterized Kaiser-style organizations in the past. The DaVita Medical group employs 2,000 primary care and specialist physicians in nearly 300 medical clinics, 35 urgent-care centers, and six outpatient surgery centers in six states. Among the group’s divisions is the formerly independent HealthCare Partners, which, as this Commonwealth Fund case study makes clear, has a long history of accepting and managing financial risk, using advanced information systems, and promoting quality-improvement programs. That said, no one should underestimate the challenge of growing the UnitedHealth acquisition of dispersed physician groups into a national system capable of disrupting our floundering health system. Health care is a very local affair, and the organizations providing it tend to be creatures of their localities and histories. It can take generations for a provider-insurer partnership to develop a culture of trust, collaboration, and value orientation that has made existing examples of these combinations so uniquely effective. If the new entity seeks to grow, it will find that recruiting and training physicians who can leave the fee-for-service mentality behind is a challenge, as is finding leadership that can gain and keep health professionals’ trust. Kaiser has failed in several attempts to spread to new locations. And though UnitedHealth’s Optum division, which will run the partnership, has some limited experience managing selected specialty health services, making this new enterprise work could prove daunting. Even if the Aetna-CVS and UnitedHealth-DaVita ventures contain the seeds of transformative health system change, it will take time for those seeds to germinate. But Wall Street is not a patient audience. The involved companies will face short-term pressure to prove the profitability of the new arrangements. From this standpoint, it does not bode well that DaVita was anxious to sell its medical groups because they were not performing financially. The excitement about these two bold new health care arrangements says as much about the desperation with our current health care systems as it does about the promise of the mergers themselves. They may have compelling short-term business value to shareholders — though that, too, remains to be proven. As fundamental health care disrupters, however, they face challenging and uncertain futures.
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On today's episode of the Zacks Friday Finish Line, Content Writer Ryan McQueeney and Editor Maddy Johnson take on this week's biggest stories, including the latest earnings results from Dollar General (DG) and Lululemon (LULU), as well as major healthcare M&A deals involving CVS (CVS), Aetna (AET), and UnitedHealth (UNH).
The combination of CVS Health Corp (NYSE:CVS) with Aetna Inc (NYSE:AET) seems like a strong move, and it raises questions as to who will scoop up Rite Aid Corporation (NYSE:RAD) and its stores and pharmacy management business. This may save both firms money because people may be enticed to use CVS clinics instead of going to the doctor. In addition, when people go to the clinics, they’ll be right there in a CVS store.