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Unlocking Value in Health Plan M&A: Sometimes the Deals Don’t Deliver

Study reveals many deals fall short in value creation


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The number of M&A transactions among commercial health plans is increasing, fueled by legislative, economic, and strategic drivers that are prompting some plans to consider consolidating as a way to improve economies of scale and remain competitive.

Yet health plan executives contemplating mergers and acquisitions should take note: Deloitte’s analysis of 44 transactions between 2006 and 2012 points to a startling conclusion: Fewer than half led to sustained improvements in comparative market value three years after the deal closed.

Value creation – improving operating margins, enhancing the balance sheet, and providing shareholder value – is the most commonly used way that investors, industry experts, and transaction participants gauge success. Deloitte’s study, Unlocking the value in health plan M&A: Sometimes the deals don’t deliver, reveals that many transactions fall short in value creation:

  • For slightly more than half of the acquiring health plans, price per share outpaced the industry index at announcement and one year later. By the three-year mark, fewer than four in 10 had a higher growth in price per share compared to the industry index growth.
  • All but one of the acquiring plans showed an increase in revenue in the wake of a deal, and most also improved their earnings per share. Changes in medical loss ratios (MLR) one and three years after an acquisition were negligible.
  • Changes in analyst ratings for acquirers were few, and where ratings did change there were three times as many that fell than improved.

Why didn’t more of these deals deliver better financial results?
In Deloitte’s experience, optimal value may be achieved as the result of relentless, ongoing pursuit of operational synergies involving people, processes and technologies, and strategic execution of a growth strategy in a focused, disciplined process. These combine to potentially maximize value creation and are foundational to effective M&A for commercial health plans.

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