UnitedHealth’s MedSynergies Acquisition To Aid Optum’s Growth

UnitedHealth (NYSE:UNH) announced on Tuesday, September 29 that it will acquire MedSynergies, a healthcare service provider headquartered in Texas. Terms of the deal have not been disclosed as yet. ^[1] This acquisition is UnitedHealth’s latest effort to strengthen its fast-growing Optum division. Last month UnitedHealth announced the expansion of Optum Labs, a collaborative research center jointly started by Optum and the Mayo Clinic in a bid to enhance innovation. ^[2]

Below we take a look at how the acquisition could boost the Optum division. We have a price estimate of $83 for UnitedHealth’s stock, which is at a slight discount to the current market price.

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Synergies Could Boost Optum’s Business Capabilities

The new partnership is likely to benefit UnitedHealth as it will widen Optum’s client base with the addition of around 9,300 healthcare providers in the U.S. that MedSynergies currently serves. ^[1] MedSynergies’ expertise in physician practice management and revenue management for hospitals and healthcare systems will particularly add value to Optum’s Insight business. In addition, the analytic-driven decision making approach that both companies provide to clients will further improve the quality of health services.

Optum Is UnitedHealth’s Fastest Growing Division

Optum provides health services to individuals, employers, government as well as life sciences companies. The division consists of the following three subdivisions.

OptumHealth primarily provides health and wellness services to over 61 million individuals across the U.S.

OptumInsight provides software and information products and services as well as advisory and outsourcing services to clients such as hospitals and physicians. OptumInsight also caters to government bodies, as well as biotechnology, pharmaceutical and medical device companies.

OptumRx is responsible for processing and paying prescription drug claims for its clients. It offers pharmacy benefits management (PBM)  services serving more than 14 million people nationwide by processing over 300 million retail, mail and specialty drug prescriptions annually.

Optum contributes more than 25% to our valuation of the company. The division has seen impressive growth in recent quarters. During the first half of 2014, Optum witnessed nearly 30% growth in revenues compared to the same period in 2013. ^[3] By the end of our forecast period in 2021, we estimate revenues from Optum to grow by nearly 25% from the current year.

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1. Optum to Acquire MedSynergies to Help Physician Groups Enhance Patient Care, Improve Practice Performance, UnitedHealth Press Release [↩] [↩]
2. Four New Partner Organizations Join Optum Labs Research Collaborative, UnitedHealth Press Release [↩]
3. SEC 8K Filing, July 17 2014 [↩]