- Healthcare mergers and acquisitions made a comeback in the second quarter of 2019. Deal volume rose 7.3% compared to the first quarter, although it was down by the same percentage compared to the second quarter of 2018, according to a new PwC report.
- There were no "mega-deals" (valued at $5 billion or greater, according to the report) during the quarter. The biggest transaction was UnitedHealth Group’s acquisition of Equian from New Mountain Capital for $3.2 billion, which it is folding into its Optum division.
- There have been no healthcare IPOs since 2016.
Mergers and acquisitions have dominated the healthcare sector since the 1990s. This report from PwC suggests that momentum is unlikely to slow any time soon. Not only did deal volume exceed the year-ago quarter, the number of deals topped 250 for the eighth consecutive quarter, according to the report.
The value of the deals was also on the rise. It was 10.3% higher than the average of the preceding seven quarters, although it was down slightly compared to the same quarter last year, PwC found.
"Acquirers reconfirmed their interest in health services with a return to growth in deal volumes and value (when excluding megadeals)," Nick Donkar, PwC’s U.S. Health Services Deals Leader, wrote in the report. "While the ACA’s future, plus macroeconomic factors such as interest rates and tariffs, continue to dominate headlines, we think that industry fundamentals remain favorable to deals."
Long-term care, driven in part by the aging of the U.S. population, led the deal board. With 114 transactions in total, that sub-sector represented 41% of total deal volume. By contrast, hospital transactions represented only 5% of deal volume; managed care, just 3%. Transactions involving laboratories, MRI and dialysis also showed promise, growing 117% year-over-year.
Private equity firms have continued to show interest in making transactions, but another new driver for deals may be the Tax Cuts and Jobs Act of 2017. Under the federal program, projects in opportunity zones, or designated low-income communities, receive tax cuts. PwC researchers expect interest in the space to increase.
The report also noted that, as a result of higher costs associated with tariffs, "providers could start to consider deals that help ameliorate potential cost issues associated with, for example, new facility construction."
However, foreign buyers will also continue to be interested in the American healthcare system, according to the report, despite political headwinds. "We anticipate continued interest in U.S. assets and expertise from overseas buyers, despite increased scrutiny of Chinese investors by the Committee on Foreign Investment in the United States," it said.