While down slightly year-over-year, 2016 was an active year for U.S. healthcare deals, according to a new report from PricewaterhouseCooper's Health Research Institute. Volume for volume, 2016 – chalking up 939 deals – only noticed a slight decrease (1.4%) from 2015, which booked 952 deals. Value, however, decreased 59.6% year-over-year with a total reported deal value of $71.7 billion in 2016.
The report states that deal value declined significantly as 2015 was "an exceptional megadeal year." The report's message, Thad Kresho, U.S. Health Services Deals Leader at PwC, tells Healthcare Dive is that healthcare "is still a very active market."
New administration, continued value-based focus
The new report echoes recent PwC HRI messaging that while a new presidential administration does throw uncertainty into the marketplace, it does not take away focus from value-based care. Last month, Trine Tsouderos, PwC's Health Research Institute director, told Healthcare Dive, "If you think about the political changes as the waves on the surface of the ocean, there's a very strong current underneath that is the shift to value-based care," she said. "We do not see that changing. We see the shift continuing industry-wide despite any changes in Washington, DC."
Kresho agrees. "I think there will be changes regarding a new administration for sure but there will be underlying drivers" for the industry such as delivering better patient care as well as a greater focus on quality measures, he stated. Many of the deals in 2016 within the healthcare space focused on value-based business and quality and Kresho sees that trend continuing as players look to take on more risk and shift away from fee-for-service.
Why long term care continues to receive the lion's share
Healthcare M&A trends equate to the marriage of individual markets across the spectrum as their reimbursement/value-focused goals become more aligned. Take long-term care delivery providers, for example. Long-term care players, just as in 2015, were the most active in the healthcare deal-making space in 2016. It saw 337 deals (36% of all deals) totaling $14.3 billion last year.
It is no surprise such money is entering the space as the U.S. population continues to age. A Congressional Budget Office from August 2016 found the number of people who are 65 years old and older has more than doubled since 1966. As more individuals begin to enter these long-term care facilities for care delivery services, they look more enticing as partnerships for larger health systems as patient care is viewed more as a continuum.
Long-term care, according to Kresho, has historically been a fragmented industry. Kresho says many of these 337 deals involved mom-and-pop stores aligning themselves with larger regional systems.
What happened to hospitals?
Hospital deal activity booked $13.9 billion across 89 deals, down by volume (-12.7%) and up by value (46.7%) compared to 2015. "These deals are expected continue in 2017 as providers continue expanding their networks/relationships through traditional M&A as well as new forms of partnerships and alliances in response to the continued call for improved quality, patient engagement and new reimbursement models," Kresho said.
The loneliest IPO
According to the report, only one IPO occurred in 2016 for U.S. health services. According to Kresho, 2016 was a down year for IPOs across most fronts where uncertainties such as Federal Reserve interest rates, market volatility, post issuance performance of recent IPOs, and other world events served to temper IPO levels. However, IPO activity across industries saw "some uptick being realized near the later part of 2016 which could provide optimism heading into 2017," he added.
What the results mean for players, big and small alike
The healthcare industry will not be lacking M&A activity this year, according to Kresho. "Don't put your head in sand because otherwise you'll be missing opportunities," he says, adding big trends for administrators to watch for are joint-ventures, strategic partnerships or alliances. While such arrangements may not act as official fiscal M&A activity, that's the area Kresho says individuals should pay attention to and understand where they fit into their market.
What you bring to the table will matter, no matter if you're a small or big regional player. "As organizations take on more risk, they will continue to seek partners in the market that can help in managing these complexities while also improving the quality of services being delivered."
Kresho adds that interested organizations and administrators should make sure they are active in the marketplace make their presence known. While looking to potential partnerships, important questions to ask should include:
- How is my organization important to the health ecosystem I operate in?
- How can I stay relevant in this ecosystem?