The Affordable Care Act (ACA) continues to drive a healthcare merger frenzy, currently valued at approximately $367.6 billion for the first 9 months of 2015, and representing a 46.2% increase by value over the same period last year, according to Mergermarket. The ACA is forcing healthcare players along the spectrum – pharmaceutical companies, hospitals, health insurers, drugstore chains and pharmacy benefit managers – to seek size and leverage for negotiating power. With the emphasis on providing value at lower costs, everyone is under intense pressure and consolidation is seen as necessary. As Dr. Kaveh Safavi, Accenture's Managing Director of Global Health, said in a recent New York Times article, "There is serious economy of scale to be accomplished." Deals beget more deals as healthcare players try to keep up with, and beat their rivals.
The last couple of days alone have seen fervent activity. Walgreens Boots Alliance acquired Rite Aid for $17.2 billion which will help it to compete with CVS both on a retail level, a walk in clinic level and in pharmacy benefits which accounts for 63% of CVS's revenue (Rite Aid paid $2 billion this year to acquire the pharmacy benefits management company, EnvisonRx). And, in what may amount to the biggest healthcare deal of 2015, Pfizer and Allergan (currently valued at $113 billion) confirmed on Thursday that they are in preliminary merger talks. This one is particularly interesting because it represents an attempt at tax inversion (shareholders of the overseas company must own at least 40 percent of the combined entity for the combined entity to use the tax rate of the overseas company). Pfizer's CEO Ian Read publicly stated at Thursday's Wall Street Journal Viewpoints discussion, that the U.S. tax rate of 25% puts Pfizer at a "tremendous disadvantage" and that Pfizer is competing against foreign companies "with one hand tied behind our back."
