Due diligence challenges encountered during M&A transactions in the health insurance sector

Luciana Mayumi Sakamoto
Souto Correa, São Paulo
luciana.sakamoto@soutocorrea.com.br

Maria Luísa Matos
Souto Correa, São Paulo
maria.matos@soutocorrea.com.br

Anderson Ribeiro
Souto Correa, São Paulo
anderson.ribeiro@soutocorrea.com.br

Introduction

The Brazilian private healthcare sector is undergoing one of the most intense consolidation cycles in its history. Accounting for approximately nine per cent of gross domestic product (GDP) and serving over 50 million beneficiaries, the segment has become strategic both due to its economic relevance and its social and regulatory impact. Its hybrid nature, public in purpose and private in structure, presents a continuous challenge in regard to balancing financial sustainability, care quality and consumer protection. This model requires a sophisticated regulatory framework and prudential oversight mechanisms that are designed to ensure the solvency of healthcare operators and the continuity of beneficiary coverage.

Between 2021 and early 2022, it is estimated that approximately 150 merger and acquisitions (M&A) transactions^[1] and initial public offerings (IPOs) were carried out in the sector, amounting to more than BRL 15bn. Notable transactions include Rede D’Or’s acquisition of SulAmérica and the merger between Hapvida and NotreDame Intermédica,^[2] which was the country’s second and fourth largest transactions, respectively, representing the most impactful competitive deals in the sector’s recent history. The period was also marked by IPOs issued by groups such as Mater Dei, Viveo, Oncoclínicas and Kora; DASA’s expansion through hospital and laboratory acquisitions; and the corporate restructuring of Amil, which occurred as a result of the sale of the company by UnitedHealth Group to José Seripieri Filho. These corporate transactions demonstrate the market’s maturity and liquidity, attracting investment funds interested in consolidation opportunities, particularly in niches such as digital health, primary care and preventive medicine.

This process of corporate reorganisation reflects the pursuit of operational efficiency, revenue diversification and expansion of the scale of the care provided. However, M&A transactions in the private healthcare sector have an impact that goes beyond financial boundaries. They directly impact the sector’s competitive and prudential structure, alter operators’ risk profiles and challenge the regulatory parameters set by the National Regulatory Agency for Private Health Insurance and Plans (Agência Nacional de Saúde Suplementar or ANS) and the antitrust guidelines issued by the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica or CADE). In this context, due diligence has become an essential tool for managing governance, risk management and regulatory compliance during M&A transactions.

The concept and role of due diligence

Due diligence is the process of auditing and verifying relevant information about a target company to reduce informational asymmetries and assess the legal, financial, regulatory and care-related risks prior to closing the transaction. In highly regulated sectors, such as healthcare, the role of due diligence is even more strategic, as it ensures the prudential feasibility of the transaction, identifies sensitive contingencies and verifies the company’s compliance with ANS standards on solvency, capitalisation and governance.

From both a legal and economic perspective, due diligence serves four main functions.^[3] First, it is formative, providing technical and regulatory input that supports the acquisition decision. Second, it is evaluative, enabling fair asset pricing by taking into account the relevant liabilities, technical provisions and care-related risks. Third, it is evidentiary, documenting the duty of care and the good faith of the parties. Fourth, it is protective, forming the basis for contractual clauses on indemnification, price adjustments and risk mitigation mechanisms, such as escrow accounts and earn-outs linked to the future performance of the portfolio.

The technical dimensions of due diligence involving the supplementary healthcare sector

In regard to transactions involving healthcare plan operators and specialised insurers, the due diligence conducted must include a detailed actuarial assessment of the target’s portfolio. This analysis provides insights into the beneficiaries’ epidemiological profile, historical loss ratio, average care cost, per capita ticket, delinquency rate and the dependency of the revenue on large group contracts. It should also include a review of the relevant technical notes, pricing and adjustment methodologies, as well as the adequacy of the technical provisions required by the ANS. Even when certain provisions are not mandatory, analysis of them is recommended as best practice for regulatory prudence purposes.

Another critical aspect of the due diligence process is verification of the sufficiency of assets to cover the technical provisions and adjusted net equity in relation to risk-based capital, a parameter that measures the operator’s ability to meet its obligations. Projecting medium- and long-term revenue and expense flows is also essential in order to assess the financial sustainability of the transaction and the feasibility of integrating the acquired portfolio.

On the buyer side, due diligence should estimate the acquisition’s impact on its own technical provisions, required capital and exposure to underwriting, credit and the relevant market, operational and legal risks. Strategic questions guide decision-making during this process: Will the current accredited network be sufficient to absorb the new portfolio? Will it be necessary to expand the proprietary network or establish new agreements? Could network integration create geographical overlaps, operational imbalances or an increased loss ratio? Will the beneficiaries’ profile remain stable? Will the risk-based capital be adequate after the acquisition? Will the transaction deliver sustainable revenue growth or increase care-related liabilities? The answers to these questions underpin the pricing, risk allocation and the definition of contractual guarantees and post-closing conditions.

Prudential, antitrust and legal dimensions

The prudential aspect of due diligence involves analysing the operator’s compliance with the regulations issued by the ANS, the presence of infraction notices, economic–financial recovery plans and conduct adjustment agreements. From an antitrust perspective, it is crucial to assess whether the transaction could result in market foreclosure, network exclusivity or excessive vertical integration.

The legal aspect of due diligence, in turn, involves reviewing the relevant agreements with providers, suppliers and beneficiaries, identifying civil, labour and tax contingencies and verifying compliance with the General Data Protection Law (Law No. 13,709, Lei Geral de Proteção de Dados or LGPD). In regard to technological integrations, it is crucial to ensure that the relevant information systems and interoperability meet the standards required by the ANS and the National Data Protection Authority (Agência Nacional de Proteção de Dados or ANPD). This aspect becomes particularly relevant given the rise of healthtech firms, which means that data governance and cybersecurity are central to the value of healthcare companies.

Governance and post-merger monitoring

Due diligence should be treated as a continuous and multidisciplinary process that begins before the contract is signed and extends throughout the operational integration. In regard to complex transactions, it is advisable to conduct a post-merger audit to validate the assumptions analysed and to adjust the governance structure according to the new corporate reality. This monitoring is particularly important when foreign capital is involved or when there is a significant change of control, situations that demand greater transparency and institutional robustness.

The absence of comprehensive due diligence can undermine the economic sustainability of the transaction and create significant regulatory and reputational risks. When conducted with technical rigor, a prudential perspective and integration across legal, actuarial and regulatory dimensions, prior due diligence becomes a competitive advantage. It ensures that business decisions align with the principles of solvency, competition and the social function of the sector, preserving the system’s credibility and the security of the beneficiaries.

Conclusion

The Brazilian private healthcare market, while highly regulated, offers an environment of regulatory predictability, institutional stability and economic scale, making it attractive to both domestic and international investors. In this context, due diligence is more than a risk filter: it serves as a primary instrument of regulatory governance, prudential management and sustainable value creation. Nevertheless, the level of formality and depth must be calibrated according to the size of the transaction, the complexity of the asset and the risks identified. There is no single model or definitive list of essential information; rather, the process must be tailored to the realities of each transaction to ensure that informed, secure and legally sound decisions are made.