If a managed care company is not cutting a merger or acquisition, then there is probably something wrong. The sector is in the midst of a massive consolidation wave, with one of the latest megadeals from PacifiCare (NYSE:PHS). Wall Street loves the deal-making. After all, PacifiCare's stock increased 5.5% on its deal to buy American Medical.

Yesterday, investors saw another deal they liked: Centene's (NYSE:CNC) purchase of Swope Community Enterprises. Centene's stock price surged 12.4% to $43.51. The price tag comes to about $93 million.

The deal means 136,000 more members for Centene. It also means adding two more Medicaid states -- Kansas and Missouri (currently, Centene operates health plans in Indiana, New Jersey, Ohio, Texas, and Wisconsin). In fact, the two states have a potential for 1.2 million members. In other words, the deal is not just about buying market share; it is also a way to grow the business organically.

Over the past 20 years, Centene has specialized in Medicaid-related programs, building a member base of 533,300. Moreover, the future is bright for the company. After all, Medicaid managed care spending is expected to grow from $270 billion in 2003 to $400 billion in 2007.

Centene thinks the acquisition will be highly accretive, adding $0.31 to $0.34 to earnings per share in 2005.

As the managed care industry consolidates, the chances of Centene remaining an independent company remain low. But, with its recent acquisition, it will give potential suitors -- say, Anthem (NYSE:ATH) and Motley Fool Stock Advisor recommendation UnitedHealthcare (NYSE:UNH) -- more reason to pay a premium.

Fool contributor Tom Taulli owns none of the stocks mentioned in the article.