Dive Brief:
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Deals among health services companies were down by 2.5% in 2017, but the value of those deals jumped more than 145% to $175.2 billion, a new PricewaterhouseCoopers (PwC) report finds.
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Industry deal volume peaked in the first quarter with 270 deals. The fourth quarter held the deals with the highest values, a total of $99.2 billion.
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Long-term care was the busiest sector within healthcare, but managed care saw the largest deal value ($84.8 billion), driven by the CVS Health-Aetna proposal announced in December.
Dive Insight:
What the industry lacked in numbers in terms of deals, it made up for them in strength.
The CVS Health-Aetna deal accounted for nearly 44% of total deal value for the year and 78% of deal value in the fourth quarter. Even without that proposed mega-merger, 2017 deal value involving healthcare would have been almost 40% greater than the previous year.
Despite a slight dip in volume, healthcare M&A activity remains active. PwC found Q4 was the 13th consecutive quarter where healthcare M&A volume exceeded 200 deals though deal volume dipped in that quarter.
Five deals exceeded $5 billion in 2017, an increase over 2016.
Managed care and physician medical groups saw the highest year-over-year growth in terms of volume, but managed care’s deal values increased more than 5,200%, while physician medical groups' value decreased by 22%.
Looking ahead to 2018, PwC said continued uncertainty will play a key role in M&A activity where the healthcare political landscape will “disrupt corporate strategies around all forms of deals.”
The Republican-led Congress failed to repeal the ACA in 2017, but was able to remove its individual mandate penalty as part of its tax bill. The Trump administration has also taken aim at the ACA through executive orders and policies. Congress isn’t expected to take up another repeal effort in 2018, especially with it being an election year, but another year of uncertainty could affect M&A activity this year.
The CVS Health-Aetna deal may spark other megadeals as healthcare companies look for ways to “combat higher drug costs and to unify disparate data sources to create more powerful insights about patients,” the report predicted.
That may beginning this year, with a coterie of health systems forming a nonprofit drug company earlier this month to mitigate drug shortages and combat rising healthcare costs.
In terms of hospitals, PwC said both for-profit and nonprofit will continue to look for M&A options on a geographical basis. “Key drivers are likely to continue to include the pursuit of growth, and scale to aid population health management efforts,” the report stated.