With the current boom being witnessed in the medicare business in the U.S., there is speculation doing rounds on the possible mergers or acquisitions down the road. One such acquisition target seems to be the Louisville-based medicare company Humana Inc. (HUM, Financial), which could be a soft target for acquirers such as Aetna Inc. (AET, Financial) or Anthem Inc. (WLP, Financial) which happen to be its immediate rivals operating in the same segment. Such a possibility has been discussed in length in a Bloomberg story posted a couple of days back, and this has obviously raised several eyebrows. Let’s get to the facts that have been shared on Humana Inc.’s possibilities of getting acquired, which might see the light of the day in the near future.
The glaring facts to date
The rise of aging baby boomers enrolling for government sponsored programs meant for the elderly is the chief reason behind the anticipated interest of larger healthcare providers to consolidate their operation with their smaller counterparts. In fact, something similar is quite possible with medicare expert Humana Inc. that has been generating record revenues backed by aging baby boomers that are now enrolling in government aided programs. Humana Inc. is supposedly being taken to be the acquisition target for its immediate rivals who want to grow larger and stronger in the same industry.
The Bloomberg story hinted at Humana Inc. currently being valued at $27 billion. And with respect to it being an acquisition target for either Aetna or Anthem Inc., Credit Suisse Group’s Ralph Giacobbe, states – “A takeover of Louisville, Kentucky-based Humana at about $222 a share, representing a premium of almost 25 percent to Wednesday’s close, would be accretive for both buyers on a cash basis…”
The fact remains that medicare forms the core business for Humana Inc. accounting for about 76% of the company’s total insurance premium revenue earned almost every quarter. Analysts have opined that looking into Humana’s financial playbook it might be stated that if this medicare expert gets finally acquired, this acquisition would be referred as one of the biggest companies at Kentucky “changing hands”.
It is to be noted that Humana generated revenue of $48.5 billion in 2014. And as per George Renaudin, Vice President of Humana’s Medicare segment, the company has the potential to have around 3 million medicare members by the end of the year. Hence, acquiring Humana would serve as a clear advantage to the acquirer in the days ahead.
Since 2011, enrollment for Medicare has seen a straight climb in the U.S. and such membership is expected to reach 68.4 million in 2023, up from the projected 54.4 million this year, as per the Center for Medicare & Medicaid Services. Such an improvement in membership is surely benefitting companies such as Humana Inc. that holds a large share in the government-based markets. Acquiring it could aid the acquirer to reap the benefit of cost reduction by consolidating its operations.
Last word
The market is expecting Humana Inc. to become the target for acquisition by the larger medicare companies taking cue from the Bloomberg Business story that got published on March 18. But only time will determine the fate of Humana Inc. as to whether it remains a buyer or seller in the U.S. insurance sector. Let’s stay tuned for more information on this regard in the forthcoming days which could portray the probability of larger health insurance companies targeting Humana as their acquisition choice.
