Healthcare Merger, Acquisition Deal Value Increased 145% in 2017

January 29, 2018 - Despite the number of healthcare merger and acquisitions deals dipping slightly in 2017, deal value significantly increased by 145.8 percent, reaching a total of $175.2 billion, a new PricewaterhouseCoopers (PwC) report revealed.

In 2017, the number of healthcare merger and acquisition deals fell by 2.5 percent compared to 2016’s year-end numbers. With the modest decline, 2017 saw 967 deals across several health services sectors, including behavioral care, home health care, hospitals, labs, MRI and dialysis, long-term care, managed care, physician medical groups, and rehabilitation.

While healthcare merger and acquisition deals declined overall, 2017 saw a slight increase in megadeal volume and value. In this year’s report, PwC defined a megadeal as a healthcare merger and acquisition activity exceeding $5 billion.

Five healthcare merger and acquisition deals qualified as megadeals in 2017, accounting for just one more megadeal than the previous year.

However, megadeal value greatly exceeded 2016’s numbers. Megadeal value increased by 325.9 percent in 2017, totaling $104.8 billion.

The significant increase in megadeal value stemmed from the CVS Health Corporation’s acquisition of health payer Aetna Inc. during the last quarter of 2017. The megadeal had a value of $77 billion, making it the largest healthcare merger and acquisition transaction in 2017.

But even without the CVS and Aetna deal, PwC researchers pointed out that overall healthcare merger and acquisition deal value was significantly up in 2017. Excluding the megadeal from the analysis, the total deal value was almost 38 percent greater than the total value in 2016.

The deal value in 2017’s fourth quarter also would have been 27.2 percent and 17.3 percent higher over the prior quarter and year, respectively.

Researchers also noted that several other key healthcare merger and acquisition transactions occurred in 2017 but did not have disclosed deal values. For example, Dignity Health and Catholic Health Initiatives recently signed a definitive agreement to merge, creating a health system of over 700 care sites and 139 across 28 states.

Advocate Health Care, the largest health system in Illinois, also recently announced that it plans to merge with Wisconsin-based Aurora Health Care. The merged entity would create a 27-hospital system with an estimated $11 billion in annual revenue.

The proposed hospital mergers would create large health systems. But the health systems did not disclose the deal values of the proposed mergers.

Additionally, the PwC report examined healthcare merger and acquisition activity in 2017 by sub-sector.

In terms of deal volume, the long-term care sub-sector saw the most growth in 2017, with 297 deals total, representing 31 percent of deal volume. Long-term care continued to rake in the highest number of deals as the sub-sector did in 2015 and 2016.

The managed care sub-sector, however, experienced the highest deal value in 2017. Managed care deals totaled $84.8 billion, accounting for almost one-half (48 percent) of the total deal value in 2017.

Managed care deal value was also 53 times greater in 2017 compared to the previous year. The CVS and Aetna deal contributed to the significant growth in deal value for this sub-sector.

PwC researchers also reported the following in terms of year-over-year growth by sub-sector:

• Managed care and physician medical groups grew the most in terms of volume, with 25 percent and 22.1 percent, respectively

• Home health care and other health services followed managed care in terms of deal value

• Home health care experienced the largest reduction in deal volume, with a 32.1 percent decline

• Behavioral care had the greatest decline in terms of deal value, with an 81.2 percent decrease

Overall, the healthcare industry experienced significant mergers and acquisitions activity in 2017 and PwC researchers predict 2018 to follow that trend.

“Q4 2017 transaction activity and the recent tax reform passage presents favorable momentum heading into 2018, where we expect to see continued transaction activity in many of the health services sector,” stated Thad Kresho, US Health Services Deals Leader at PwC. “Private Equity interest also continues to be high with additional capital being raised and new entrants entering competitive processes.”

Researchers added that healthcare mergers and acquisitions are likely to continue, if not increase, because of the uncertainty relating to an Affordable Care Act repeal and the political landscape, which “continues to disrupt corporate strategies around all forms of deals.”

Healthcare consumerism and tax reform will also drive the healthcare mergers and acquisitions trend into 2018.

The report also predicted that megadeals of $5 billion or more are likely to increase in 2018. The CVS-Aetna deal may prompt other similar deals as healthcare organizations search for innovative ways to lower drug costs and unify disparate data sources to gain meaningful insights about patients, researchers explained.

In addition, the hospital sector should see continued healthcare mergers and acquisitions activity, PwC researchers predicted.

“The hospital sector, both for-profit and not-for-profit, is likely to continue to experience deal activity with systems consistently reviewing portfolios on a geographical basis,” the report stated. “Key drivers are likely to continue to include the pursuit of growth, and scale to aid population health management efforts.”