Dive Brief:
-
Investors remain interested in healthcare as M&A activity surged in 2017, according to Bain & Company’s seventh Global Healthcare Private Equity and Corporate M&A Report.
-
Despite much debate and potential healthcare upheaval in Washington, investors see healthcare as a compelling investment as the lines between payers and providers continue to blur and technology companies like Apple and Amazon look to dive into the space.
-
Bain & Company said healthcare M&A deals increased 27% to $332 billion in 2017. Three megadeals accounted for one-third of the total ($126 billion). The number of transactions also increased by 16%.
Dive Insight:
What makes healthcare so appealing — especially with so much potential activity swirling around the industry in the nation’s capital? Bain & Company said an aging population, chronic disease, development of innovative drugs and devices and a “largely inefficient delivery system” that's seen as “ripe for innovation, disruption and consolidation" make healthcare a growth industry.
Dale Stafford, partner and leader of Bain’s Americas M&A practice, said healthcare is at a “major inflection point” and M&A activity is “profoundly reshaping the industry.” A number of potential deals are poised to shake up the space. Aetna and CVS are still seeking approval for their $69 billion plan, and in another vertical merger bid, UnitedHealth's Optum is acquiring DaVita Medical Group. Walmart is looking to further pursue healthcare as well, and is reportedly in early talks to acquire Humana.
Among hospitals, Advocate Health Care and Aurora Health are merged into the country's 10th largest nonprofit health system while Catholic Health Initiatives and Dignity Health are finishing up their merger agreement to be the second largest nonprofit system by operating revenue.
The increase in M&A deals last year was a result of "pressure from governments, insurers, employers and consumers to cut costs, while investors pushed for continued top- and bottom-line growth,” Bain & Company said.
In North America, private equity deals reached 130 for 2017, which Bain & Company said was the highest total since 2020. Those deals’ value dropped by 22% despite five deals worth more than $1 billion. The biopharma sector saw the largest North American deal, Bain & Company said.
The report pointed to five key disruptions in healthcare: Amazon's potential entry, digitalization, regulatory changes, consumerism and personalized medicine. Amazon is looking to expand its efforts to deliver medical supplies to hospitals, and while it recently dropped a plan to distribute pharmaceuticals, the industry awaits more potential entry points.
Looking ahead to the rest of this year, Bain & Company expects additional M&A activity. The biggest impacts for this year will be evolving laws and regulations, such as tax reform, innovation and the changing nature of total shareholder return (TSR). Bain said 45% of TSR growth at publicly traded global healthcare companies came from expanding price-to-earnings multiples over the past five years. That’s more growth than either revenue or earnings.
If healthcare companies can’t drive revenue growth internally, Bain & Company predicts they’ll turn to acquisitions, which will spark even more deal talks.
“While there may be some regulatory changes and broader disruptive trends, funds will remain interested in putting their money to work in the largest healthcare market in the world. Healthcare investments in North America have shown themselves to be resilient, recession resistant and noncyclical and investors will likely find new opportunities for consolidation in the large and fragmented industry,” according to the report.