Insurer M&A activity likely to grow this year

Once health reform is dealt a final "yeah" or "nay", merger-and-acquisition activity among the nation's health insurers is likely to pick up steam. That means deal making should be "a little more robust in 2010 than it was in 2009," says Joseph Zubretsky, chief financial officer at Aetna Inc. And analysts at Barclays Capital anticipate "another period of accelerated consolidation."

In the past few years, many insurers put their expansion plans on hold to ensure they had cash on hand to weather the recession as they waited for news on reform. However, consolidation opportunities remain available for companies to add market share and leverage in targeted local markets. Smaller companies that don't have sufficient scale, technology or medical care coordination capabilities won't be able to perform well long-term compared to larger companies that do have those capabilities, notes Edward Jones analyst Steve Shubitz. In addition, low valuations--the lowest in 20 years for some managed care companies--could provide the catalyst for a spate of deals this year, say Barclays Capital analysts. 

Industry behemoths such as WellPoint Inc. and UnitedHealth Group Inc. may focus on improving operations and using their money to buy back shares rather than to buy companies. "These companies are not in any rush to make acquisitions," says Shubitz. However, transactions that "make great sense" should bring "more conversation, points out WellPoint CEO Angela Braly. 

To learn more about M&A activity:
- read the Reuters article