Healthcare M&A remains hot, but value fell in Q2
The second quarter of this year was the 15th quarter in a row with more than 200 M&A healthcare deals, according to a new PricewaterhouseCoopers report.
The deal volume of 255 matches the average from the previous seven quarters. The amount declined by 7.3% compared with last quarter, but increased 9.4% year-over-year.
Despite the active quarter, the value of healthcare deals was down. At $24.6 billion, the total was a decline of 66.1% compared to the previous quarter and 50.7% down from a year ago.
Factors that contributed to deal activity included private equity fundraising and investment and corporate strategic initiatives, Thad Kresho, U.S. health services deals leader at PwC, wrote in the report. “We don’t anticipate these trends to slow during the remainder of 2018,” he said.
The value decline in the second quarter is attributed to more megadeal activity in previous quarters.
The second quarter’s lone megadeal, defined as worth more than $5 billion, was KKR's acquisition of Envision Healthcare Corporation for $9.9 billion. That accounted for 40% of the quarter’s total deal value and is the third largest transaction since 2016.
The first quarter also only saw one megadeal, but it made up 92% of that quarter’s value. There were four megadeals in Q2 2017 that accounted for 56% of the value.
The other top deals for the second quarter were:
- Long-term care: Welltower's purchase of Quality Care Properties for $4 billion.
- Managed care: WellCare buying Meridian for $2.5 billion.
- Physician group practices: Summit Partners acquiring Sound Inpatient Physician Holdings for $2.2 billion.
- Home health and hospice: Humana, TPG Capital and Welsh, Carson, Anderson & Stowe acquiring Curo Health Services LLC for $1.4 billion.
Long-term care continues to see the most deal volume with 104 in the quarter, sustaining a multi-year trend. However, physician medical group deals saw a 1,502.4% growth in value, mostly because of the KKR-Envision deal. Medical groups accounted for 49.4% of the quarter's total deal value with $12.2 billion. A recent analysis from The Commonwealth Fund found providers are consolidating faster than payers, leading to more concentrated markets.
Managed care was the most rapidly growing subsector for volume with a 100% increase.
Healthcare M&A activity will remain hot in the coming quarters with vertical deals and megadeals expected. Two large deals to watch are Amazon’s announced acquisition of PillPack and the proposed AT&T-Time Warner merger. If AT&T-Time Warner happens, other megadeals could follow in healthcare, according to PwC.
Factors for more M&A this year include regulation and policy uncertainty, vertical integration (like Cigna-Express Scripts and CVS-Aetna), new technologies and new entrants in healthcare, sagging inpatient volume and higher costs and the move to value-based care and population health management, PwC said.
A recent New York Times article, citing data compiled by Thomson Reuters, said that the healthcare sector ranks third behind energy and media entertainment regarding total deal volume in 2018.
- PricewaterhouseCoopers US Health Services Deals Insights Q2 2018