Zacks • June 26, 2019
UnitedHealth
Group Inc.’s UNH Optum unit has completed the buyout of DaVita Medical
Group, a unit of DaVita Inc. DVA, for $4.3 billion in cash.
This acquisition has been made by OptumCare — a sub-segment of Optum — the company’s health services segment. OptumCare provides primary and urgent care delivery services business. It will expand UnitedHealth’s ambulatory care services operations.
This acquisition has been made by OptumCare — a sub-segment of Optum — the company’s health services segment. OptumCare provides primary and urgent care delivery services business. It will expand UnitedHealth’s ambulatory care services operations.
With
this deal, UnitedHealth will now be able to pair DaVita Medical Group’s 300
medical clinics, 35 urgent-care centers, and six outpatient surgery centers —
which reach around 1.7 million patients a year — with Optum’s massive insurance
division.
This
acquisition is expected to aid the growth of OptumHealth, which is targeting
double-digit percentage revenue growth on average and sustainable operating
margins of 8% to 10% in the upcoming years. The unit continues to make
productivity gains in its existing products and services while investing in new
platforms and markets.
Numerous
small mergers and acquisitions have strengthened UnitedHealth's existing
business; provided a new platform for future growth; and brought tools,
technologies or skills that could not be otherwise obtained or developed more
efficiently. These business combinations are also necessary to control
UnitedHealth’s soaring medical costs and protect its margins.
Effective
use of capital is one of the drivers of UnitedHealth’s ability to achieve
distinctive long-term financial performance, as reflected by revenue CAGR of
12% from 2006-2018.
Year to
date, the stock has lost 0.6% compared with the industry’s rise of 2.12%.
The
inorganic growth strategy of the company has placed it at the highest echelon
in the industry (in terms of medical members served and revenue), against
companies like Cigna Corp. CI, Anthem Inc. ANTM, Humana and others.
Meanwhile,
an increasing trend of consolidation is being witnessed across the industry,
which is itself undergoing rapid transformation owing to heightened regulation,
soaring medical costs, increased consumerism, and shift to value-based care.
Some of the recently completed buyouts are that of Aetna Inc. by CVS Health
Corp., and Express Scripts by Cigna Corp. These deals have enabled the
surviving entities to develop an ecosystem of healthcare services and derive
efficiencies at each node.
UnitedHealth
carries a Zacks Rank #3 (Hold).
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