When it comes to merger, the Healthcare sector steals the show. The U.S. healthcare supply chain is consolidating fast, with deals across the industry ranging from insurers, pharmacies to drug distributors. The last four years were pretty solid for global healthcare mergers.
According to an analysis by Kaufman Hall, 87 hospitals were merged through the third quarter of 2017, against 102 overall in 2016. Among these, eight transactions comprised hospitals with $1 billion or more in revenues, double the big-ticket mergers in 2016.
Hospitals and health systems announced 561 transactions consisting about 1,260 hospitals from 2010 to 2015, according to the American Hospital Association. Health insurers are also striving to cut deals in this field.
Some noted deals planned in the recent past include UnitedHealth Group Inc.’s (UNH - Free Report) (the biggest U.S. health insurer) $4.9 billion deal to acquire DaVita Medical Group and CVS Health Corp.’s (CVS - Free Report) acquisition plans for Aetna Inc. (AET - Free Report) (one of the top U.S. health insurers), for about $67.5 billion in cash and stock. CVS’s acquisition of Aetna is expected to close in 2H 2018. Cigna also proposed a $67 billion acquisition of Express-Scripts.
What Promotes HealthCare Industry Merger?
A surge in interest has been noticed for vertical mergers. This would help companies to generate more efficiencies by consolidating supply chains and enjoy scale advantage, per State Street (read: Play the Best Sector of Summer With These ETFs & Stocks).
Investors should note that the healthcare sector’s debt-to-equity levels are 30% lower than the broader S&P 500. The sector is estimated to see return-on-equity more than double to 27.2% by the end of 2019 against the 19.72% expected growth in the broad market. The factors made the sector more attractive to companies that are eyeing inorganic expansion.
So, investors can definitely play the merger mania in this field. Apart from this, there are some specific factors that can favor the sector in the near term.
President Trump’s announcement of the drug plans in May, which were in the best interest of pharma companies, may benefit the space. The drug plans will likely put pressure on U.S. trading partners, forcing them to pay more for medicines.
Also, on May 30, the President signed the 'Right To Try' bill into law. This law will help patients suffering from terminal diseases to undergo experimental treatments and use drugs that are not yet approved by the FDA. Needless to say, the law brought good news for biotech companies (read: Fed, Trade & Global Politics to Rule June: 6 ETF Picks).
Healthcare ETFs in Focus
Given the above fundamentals, investors can tap a few top-ranked healthcare ETFs.
Health Care Select Sector SPDR ETF (XLV - Free Report) – Up 2.6% in the last one month
iShares US Healthcare ETF (IYH - Free Report) – Up 2.9%
Vanguard Health Care ETF (VHT - Free Report) – Up 3.3%
Invesco S&P 500 Equal Weighted Health Care ETF(RYH - Free Report) – Up 3.3%
JHancock Multifactor Health Care ETF(JHMH - Free Report) – Up 3.4%
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