Cigna and Humana Eye Blockbuster Merger

The headline of the week – and possibly the year – goes to the Wall Street Journal’s scoop on the upcoming mega-merger between Cigna and Humana, which could create a new payor powerhouse before the end of next month.

Although “sources close to the matter” didn’t disclose the structure or terms, the combined company would be worth some $140 billion, making it the third largest player in the sector behind only UnitedHealth and Elevance.

Cigna hauled in upwards of $180 billion in revenue last year, mostly from its strong position in the commercial coverage market. The acquisition of Express Scripts in 2018 also made Cigna one of the biggest names in pharmacy benefits, and its Evernorth health services arm has been adding more fuel to the fire.

  • The glaring white space in that portfolio happens to be one of the biggest growth engines for insurers, the Medicare segment.
  • While Cigna’s been trying to build momentum in Medicare Advantage since picking up HealthSpring in 2011, just this month it announced that it’s “evaluating options” to offload its underperforming MA unit.

Humana is the second largest Medicare insurer, and last reported that its MA enrollment stands at about 5.9M members – 3x more than Cigna. 

  • On top of that, Humana’s CenterWell home-health business and growing network of primary care clinics give it a big leg up in managed-care and VBC, two areas that would complement Cigna’s Evernorth operations.
  • Despite those strengths, last year’s revenue was about half of Cigna’s at ~$93B, and Humana recently announced that it would be shedding its commercial business to focus on its core MA line.

It’s worth noting that this isn’t the first time Cigna and Humana have considered merging, but previous attempts circa 2015 either fell apart or were blocked on antitrust grounds. This time around, with Cigna exiting Medicare at the same time that Humana bails on commercial, the pair seem to be building a decent case that a merger wouldn’t decrease competition.

The Takeaway

Joining forces would vault Cigna and Humana into the top tier of integrated healthcare firms, not to mention give the M&A market a much needed jolt with 2023’s biggest transaction across all industries. We’ll apparently have all the details in the next few weeks, followed by what’s sure to be a lively antitrust case.

Cano Health Explores Potential Acquisition

The retail healthcare buyout bonanza doesn’t seem to want to take a week off, and Cano Health is now the latest company to drum up acquisition rumors.

The Wall Street Journal first reported that “talks are serious” and could be wrapped up in the next few weeks, with Cano already attracting attention from at least two potential suitors.

The first was Humana, who already has strong ties to Cano following a $100M investment in 2019. The second turned out to be none other than everyone’s favorite drugstore turned healthcare heavyweight, CVS Health.

Before we get too ahead of ourselves, Cano Health is a value-based primary care provider with 143 clinics in 9 states and mostly focuses on the Medicare Advantage population.

  • Cano went public via a SPAC merger in 2021 at a $4.4B valuation and since then has fared about as well as other SPACs of the same vintage. Let’s just say it still isn’t quite back to that $4.4B mark, even after shares popped 30% on the takeover rumors.
  • Similar to Amazon’s recent pickup, One Medical, Cano has been looking for ways to raise capital to sustain its operations – and given that 44% of Cano’s 282k members are in the MA program – pursuing an acquisition by a major payor makes sense.

For Humana’s part, an interesting stipulation in its earlier investment in Cano gives the payor first right-of-refusal in the event of a sale.

  • Humana is already second in the MA market behind only UnitedHealthcare, and it’s been very vocal about plans to add over 100 more senior-focused clinics by 2025.

CVS Health, and by extension Aetna, has also been aggressively pushing into the MA market and isn’t shy about acquiring the strategic pieces to do so. See Signify Health.

  • After losing out on the One Medical acquisition to a tech giant with deep pockets, Cano would be a great way for CVS to continue building out its clinical assets.

The Takeaway

Big ticket acquisitions are turning into regular fixtures in our top story coverage as the crash in high flying valuations puts plenty of appetizing startups on the M&A menu. In the case of Cano, whoever comes out on top will gain a strong foothold in senior primary care, and it’s easy to imagine that other acquirers will be hungrily eyeing other players in the space like Oak Street and ChenMed.

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