UnitedHealth Group’s plans to spend $4.9 billion on Brazil’s biggest health-care company is the insurer’s priciest acquisition in years, giving it a huge stake in Latin America as U.S. companies compete for a rapidly growing middle-class market around the globe.
Health insurers have sought a portion of the health-care market in growing nations — Brazil being one of the hottest, as it prepares to host the 2014 World Cup and 2016 Summer Olympics — to buffer a squeeze on profits by Obamacare. Developing countries with people entering the middle class for the first time is a source of new, additional customers while the U.S. market is developed and saturated with competition.
UnitedHealth Group on Monday said it will acquire 90 percent of Amil Participações S.A., which provides health and dental benefits, and owns and manages hospitals and clinical services, that serve a total of more than 5 million people.
Brazil has been an attractive market to companies with major operations in Connecticut that have invested on a much smaller scale. Late last year, Cigna announced a partnership with Gama Saúde to tap into a broad network of doctors and hospitals for Cigna’s expatriate health-care business that caters to workers outside their home country. Also in 2011, The Travelers Cos. said Brazil is “one of the fastest growing insurance markets in the world,” as Travelers spent $370 million for a 43 percent stake in J. Malucelli Participacoes em Seguros e Resseguros, S.A., a surety insurer.
“We’ve looked very carefully at the health-care markets, not just across Latin America, but also internationally, and Brazil is a stable democracy with a robust economy, strong growth fundamentals, and it is, far and away, the largest and fastest growing health-care market in the Americas outside the U.S.,” Simon Stevens, the head of UnitedHealth Group’s international business, told The Courant in an interview.
UnitedHealth Group is based in Minnetonka, Minn., and employs about 4,200 in Connecticut, including at its subsidiaries Optum and UnitedHealthcare.
The Amil deal is one of several large acquisitions by health insurers in recent years, though some of the larger ones were domestic, intending to capitalize on Obamacare’s expansion of Medicaid or the growing number of Baby Boomers entering Medicare.
Aetna announced plans in August to acquire Coventry Health Care Inc. for $5.6 billion to seize a larger share of the ballooning Medicare and Medicaid markets. In January, Cigna spent $3.8 billion to buy HealthSpring, a Nashville-based provider of private Medicare plans.
Even UnitedHealth Group’s large purchases in recent years were domestic. For example, the company spent $8.1 billion to buy PacifiCare Health Systems in 2005 and $4.9 billion in stock-and-cash in 2004 to buy Oxford Health Plans Inc.
Stevens made clear that UnitedHealth isn’t putting its international business ahead of domestic growth.
“This is an additional opportunity alongside those, a further source of diversification and growth, not a substitute for them,” Stevens said.
A growing middle class in Brazil is driving up the number of people who have bought private health insurance from 35 million in 2005 to 48 million in 2011, UnitedHealth Group said.
Despite the rapid growth, there’s still a large untapped market — only one in four Brazilians had coverage through a private insurer last year.
Brazil is the “largest and fastest growing health care market in the Americas” outside the U.S., UnitedHealth Group officials said. Brazil is considered to have an appeal over other countries that have an expanding middle class, such as India.
“We’ve been working in India for a number of years, helping manage health benefits on behalf of Indian employers and Indian insurers,” said Stevens, UnitedHealth Group’s head of international business. “But we have not chosen to become an Indian insurer in our own right partly because of the restrictions that exist on the ability to invest in the Indian insurance market.”
Additionally, Brazil has a long tradition of having a stable, sophisticated and thoughtfully regulated health-care system, Stevens said.
Under the deal announced Monday, UnitedHealth Group will spend $4.9 billion to acquire 90 percent of the 359 million outstanding common shares of Amil. The agreement includes Brazilian tax credits worth $600 million, bringing down the effective price to $4.3 billion.
Amil’s annualized revenue this year of $5 billion is a 15 percent growth over last year. The company offers health and dental coverage, and, separately, owns a network of 22 hospitals and almost 50 clinics, not including out-patient facilities and emergency-care centers.
It’s not a closed system in which the insurance company owns the hospitals and patients must go to the insurer’s facilities for medical care. The Amil insurance customers have access to about 3,300 hospitals, almost 11,000 outpatient clinics and about 12,000 other facilities.
UnitedHealth is planning to buy 60 percent of outstanding shares sometime before the end of this year from controlling shareholders and management. In the first half of next year, UnitedHealth will buy an additional 30 percent from public shareholders, the company said.
Dr. Edson Bueno, founder and CEO of Amil, and his partner, Dulce Pugliese, control about 70 percent of the Brazil company’s shares, and they plan to retain about 10 percent for at least five years. Bueno also is investing about $470 million in UnitedHealth Group shares and holding those shares for five years.
Bueno will continue working as the company’s chairman and CEO, and he will join the board of UnitedHealth Group.