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(Reuters) — The financial chief of Anthem Inc., the second-largest U.S. health insurer, said on Tuesday that low interest rates and other conditions make it a good time for an acquisition, adding to speculation about merger activity in the sector.
Cheap debt is creating opportunities for companies to grow through acquisitions, Anthem Chief Financial Officer Wayne DeVeydt told investors during the UBS Global Healthcare Conference in New York.
"I like the pricing environment a lot, and we have a lot of capacity to work with to do a cash transaction of meaningful size — and it would be transformative," Mr. DeVeydt said.
Mr. DeVeydt's comments came against a backdrop of renewed speculation about the potential for a major insurance deal that would shrink the field of large U.S. players from five to four.
Analysts have said for years that Anthem and No. 3 insurer Aetna Inc. are possible acquirers of smaller national competitors including Humana Inc. and Cigna Corp. Last week, Leerink Research reignited that talk when it said in a research note after meeting with Aetna management that a deal between Aetna and one of the smaller players was likely, which pushed shares in the sector higher.
The last major acquisition by Anthem was its purchase of government health care provider Amerigroup in 2012 for $4.5 billion. Aetna purchased Coventry Health Care Inc., which also sells health care plans paid for by the U.S. government, in 2013 for about $5.6 billion.
Humana has a market capitalization of $26.5 billion, and Cigna is worth $34.3 billion.
There is also a field of smaller Medicaid providers that are acquisition targets, according to analysts. These include Molina Healthcare Inc., WellCare Health Plans Inc., Health Net Inc. and Centene Corp. Their market capitalizations range from $3.5 billion to $8.3 billion.
Anthem recently closed on the purchase of Simply Healthcare, a Medicaid provider in Florida.
Mr. DeVeydt said the company was looking at expanding its Medicare business in Florida, Texas and California — three of the biggest health care markets.
"We would clearly love to have more scale in Medicare, but our focus is first targeting the strategic markets that matter most," he said, referring to those three states. He said the company could increase its business in New York, Ohio and California without acquisitions.
UnitedHealth Group Inc. is rolling as one of the biggest winners in the Affordable Care Act era as the health insurer and services company posted significant gains across all lines of its business.