Healthcare M&A value down, volume up in 2017 so far
- Healthcare M&A volume was up (0.9%) while value was down (49.3%) in Q1 this year, compared to the same time period last year, a new report from PricewaterhouseCoopers (PwC) found.
- Kaufman, Hall & Associates also recently found hospital M&A activity increased in Q1 compared to last year (8% with 27 transactions so far this year).
- The report comes on the heels of a major $6 billion buyout of Medtronic's product line as Rhode Island's Care New England positions itself for an acquisition by Partners by selling of Memorial Hospital in Pawtucket, RI.
While value may be down and volume only slightly up, don't expect healthcare M&A activity to necessarily slow down anytime soon. For example, the reports were written and released before or around the $6 billion deal between Cardinal Health and Medtronic was announced. In addition, experts expect action in the space to be manifested in alternative transactions as well as the good ol' fashion acquisitions.
"I wake up now every day like I did before thinking 'I'm waiting for the newspaper to say M&A in healthcare is dead' and I woke up yesterday and see the Medtronic news," Thad Kresho, U.S. Health Services Deals Leader at PwC, told Healthcare Dive, regarding the latest M&A findings. "There's still a lot of activity happening."
PwC tallied 939 deals last year (down from 952 in 2015) and a 59.6% decrease in value over 2015, which Kresho shared in January was "an exceptional megadeal year." In Q1 2017, the firm noted total deal value at $7.9 billion and total deal volume at 235 across the sector. For hospitals specifically, PwC noted 19 deals over $68 million, down both in volume (-29,6%) and value (-95.2%) over Q1 2016.
Multi-billion deals come in ebbs and flows and aren't the only measure for judging whether a market is soft as they are tough transaction to close and in a highly regulated industry like healthcare, such deals can be even more difficult, according to Kresho. He points to the potential transaction with Catholic Health Initiatives and Dignity Health could be huge releasing ripple effects of activity into the market. Still, it's "harder to do deals today than it was six months ago. I think deals are taking longer to get done and I think they're getting harder to close. No doubt about it," he said.
Long-term care remained the most active sub-sector, with 73 announced deals, and physician medical groups experienced the greatest volume growth; its 48 transactions represented an increase of 108.7% over Q1 2016 and 77.8% over Q4 2016, the report found.
Another trend Kresho noted is the market will see more and more "alternative transactions," such as affiliations or ventures among nonprofits and faith-based entities (CHI-Dignity could be an example of this). Kaufman, Hall & Associates in their report found Q1 was particularly notable for an uptick in transactions among large organizations, with three announced deals targeting organizations with nearly $1 billion or more in revenues. The three mergers involved nonprofits: Beth Israel Deaconess Medical Center-Lahey Health, PinnacleHealth System-UPMC and Fairview Health Services-HealthEast Care System.
"Hospital providers are doing new types of deals" such as buying or affiliating not just with hospitals but other care environments, like urgent care centers, Kresho said. "M&A is going to continue to chug along. There are going to be different types of deals."
- Boston Business Journal Rhode Island’s Care New England makes bid to be acquired by Partners
- Healthcare Dive Cardinal Health drops $6.1B for Medtronic product lines
- Healthcare Dive Healthcare M&A down but not out in 2016, PwC finds
- Healthcare Dive Dignity, CHI are talking. Could a merger be on the horizon?
- PricewaterhouseCoopers US health services deals insights: Q1 2017 update
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