NaviNet Admin on November 14, 2012

UnitedHealth Group and Amil Participações S.A. Capitalizing on a High-Growth Market

UnitedHealth Group’s announcement that it plans to acquire 90% of Amil Participações S.A. for $4.9 billion in cash brought back (quite) a few mid-1990s memories of speeding through the streets of São Paulo and Rio at night with fund manager clients in taxis that refused to stop at red lights. It seemed it was too dangerous to stop. I argued that I would rather take my chances handing over whatever reales were left after the dinner check was paid over being maimed in a car crash so far from home, but apparently my Portuguese never improved enough to slow any driver down.

Fast forward a lifetime. We all know that the healthcare technology maturity lifecycle follows the course of other industries like financial services. Years ago, many major financial institutions had homegrown, legacy software systems. I’ll never forget the day someone showed me Salesforce.com during Month 11 of developing an in-house CRM system at a global investment bank. Arrgghh! Salesforce deserved that InfoWorld Top 10 Technology of the Year award back in 2001.

Another consistent growth trend has been growth by globalization, often through partnerships or by taking positions in local firms. Our financial services journey was Asia, Europe, and then the emerging markets. Could the Amil acquisition be part of another emerging strategic growth pattern for health plans? Brazil is a prime health insurance market, accounting for more than 40% of the gross written premiums in Latin America, according to International Insurance News. About 48 million people in Brazil have private health benefit memberships, which is about 25% of the World Bank’s 2011 estimated total Brazilian population of 196,655,014. In 2011, the leading eight health insurance companies in Brazil accounted for almost 70% of the total retained premium.

Amil has the largest provider network in Brazil, encompassing more than 44,000 clinicians, 3,300 hospitals, 11,000 outpatient facilities, and 12,000 labs and diagnostic imaging centers. Other large healthcare companies in the country include Porto Seguro S.A., Bradesco Seguros S.A., Sul America SA, and Unimed Paulistana. In many other industries, the behemoth companies were the first to put their feet in the water to test out geographic growth strategies—and then there was a tectonic shift when everyone else caught up. In addition to UnitedHealth Group, Aetna and Cigna have a presence in Brazil, Aetna through an initial $300-million investment in Sul America Seguros and Cigna through Gama Saùde, which links more than 20,000 doctors, hospitals, and healthcare professionals. Which health plan will be next?

We believe that this expansion into markets like Brazil is a 1 + 1 = 3 strategy. The U.S.-based plan is able to enter a high-growth, highly populated geographic region, while the technical prowess of the leading U.S. companies can bridge the gap to one of the biggest challenges facing their Brazilian counterparts– technology and technology costs.

According to Sergio Goldman, a seasoned Brazilian investment banking professional and former colleague, in the next 10-15 years, health insurance will continue to be one of the fastest-growing industries in Brazil. Income growth experienced by the so-called emerging middle class will remain as a key driver of this trend. The Government is expected to transfer at least part of its healthcare responsibilities to the private sector. At the same time, consumers tend to become more demanding, pressuring health service costs. Technology and know-how brought by U.S. healthcare entities will be a key factor in mitigating cost pressures, guaranteeing a high-quality service standard.

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