- Healthcare M&A volumes leaped by 56% in the 12 months through Nov. 15, compared to the year prior, paced by sharply higher deal growth in the physician practice, managed care and patient rehabilitation sectors, according to a new report from PwC. Long-term care saw the largest number of transactions, just ahead of physician groups.
- Readily available private equity and corporate funding is supporting the surge in dealmaking even as multiples remain lofty, the report said. The industry's mean enterprise value to EBITDA multiple was 15.2x in the period.
- Megadeals valued at $5 billion or more have roared back after two mostly quiet years and are an indicator that M&A activity will remain strong in the year ahead, PwC said. However, acquisitions in some sectors could face greater regulatory scrutiny and longer review times due to backlogs and stepped-up antitrust enforcement under the Biden administration.
The growing appetite for buying assets across the healthcare landscape reflects companies' urgent efforts to increase resilience to pandemic-driven challenges ranging from labor shortages and supply chain disruptions to increasingly uncertain revenue streams.
PwC called the rise in merger volumes over the past 12 months "extraordinary," finding the wave of deals targeting physician groups especially notable. There were 407 transactions involving medical practices in the period, more than double the level of a year ago and up from about 200 to 250 deals each year during 2017 to 2019. PwC attributed the acceleration to difficult economics plaguing doctor practices and potential CMS payment cuts in 2022 that could prompt further consolidation and private equity investment in the sector.
After years of such acquisitions, hospitals and other corporate entities now own about half of all U.S. physician practices. Hospital systems tend to become more profitable after acquiring medical groups, while doctor pay is reduced, according to research published recently in the journal Health Affairs.
Still, hospitals were the only healthcare category in which deal volume fell from a year ago, declining 16%, PwC found. The report pointed to opposition from communities and employees that led to some mergers being scuttled.
A report from Kaufman Hall this fall showed hospital M&A revenue down slightly compared to last year as the number of deals fell by half, but the average transaction size grew. Hospitals are looking to diversify their business models by taking stakes in home health, virtual care and post-acute service providers, Kaufman Hall said.
Among the largest deals of the year highlighted by PwC were Humana’s acquisition of a remaining stake in Kindred at Home, two Walgreens Boots Alliance transactions and four mergers involving contract research or manufacturing.
In total, the healthcare sector registered nine megadeals in 2021, in addition to traditional IPOs and IPOs backed by special purpose acquisition companies. Before this year, there was just one megadeal each in 2019 and 2020. Eight IPOs in health services this year are up from just two in 2020, and PwC predicted interest in the public markets will continue.
One proposed healthcare megadeal that has attracted Justice Department scrutiny this year is UnitedHealth Group's proposed $8 billion acquisition of data analytics company Change Healthcare. The deal, announced in January, is opposed by the American Hospital Association and American Antitrust Institute, as well as competing payers.
The Federal Trade Commission this summer said it would increase its focus on merger activity in the healthcare industry amid concern that less competition could bring higher prices and hurt patient access to care.
Under a growing spotlight, health systems could turn to alternative forms of alliances or venture funds for investment as they work to achieve population health and financial goals, PwC said.