Healthcare M&A: Titans on spree as regulatory crackdown falls flat

It is a bleak time for most dealmakers as sagging stock prices and rising interest rates chill the mood for tie-ups. But an important court ruling from last week may boost spirits and ultimately transactions, especially in the healthcare sector.

After a trial earlier this year, a federal judge denied an attempt by the US Department of Justice to block the UnitedHealth Group from acquiring a claims and billing software company, Change Healthcare, for $13bn, a deal announced in 2021. UHG, with a market cap of nearly $500bn, is a large health insurer which in trying to buy Change did not seek to acquire a direct competitor. Rather it sought an innovative upstart that could expand UHC’s range of services.

The Biden administration saw things differently, arguing that UHG would stifle any rivals using Change’s products. The judge disagreed. The decision was a blow to US competition authorities, seeking to block takeovers even if immediate harm to consumers does not seem obvious from any consolidation. Another judge recently ruled in favour of lab equipment maker Ilumina in a similar kind of deal after a regulatory challenge.

These decisions have emboldened other companies to both buy and sell within healthcare, despite the deal slowdown. Amazon in August announced it would buy the national concierge physician practice, One Medical, for $4bn. Cano Health, a patient practice for seniors with a market cap of $4bn, is up for sale according to news reports.

One Medical and Cano have gone public within the last three years. Each is still losing money in their growth phases. But healthcare spending in America accounts for more than $4tn annually, or a fifth of gross domestic product. The business opportunity remains large.

Health groups such as UHG, Anthem, Cigna, Humana, Aetna and CVS each have the financial heft which allows them to snap up spry, new entrants. As the courts refuse to get in their way, they may well continue to do so.