Healthcare Merger and Acquisition Activity Up 14.4% in 2018

January 28, 2019 - Healthcare merger and acquisition activity in 2018 broke some records, PricewaterhouseCoopers (PwC) reports.

Specifically, quarterly deal volumes exceeded 300 merger and acquisition transactions twice.

The year ended with providers, payers, and other healthcare stakeholders engaging in 1,182 mergers and acquisitions, researchers reported. Deal volume saw a 14.4 percent increase over the previous year, which PwC pointed out was a “notable year” itself.

Quarterly healthcare merger and acquisition activity has now consistently outpaced deals since the end of 2014 and 250 deals since the third quarter of 2017.

Despite an uptick in healthcare mergers and acquisitions, deal value declined 31.4 percent in 2018 versus last year. Although the year finished with a total deal value of $121.5 billion, which was still 1.4 and 1.7 times higher than 2015 and 2016, respectively.

Based on 2018 trends, PwC experts anticipate the healthcare merger and acquisition activity to continue trending up in the next year.

“Although 2019 has started with some economic and regulatory uncertainty, a number of signs suggest that interest in deals will continue this year,” Thad Kresho, US Health Services Deals Leader at PwC, stated in the report. “Corporate and Private Equity buyers both have access to significant levels of capital, and with double-digit volume growth in some sub-sectors, it's clear that deals are seen as an important strategy in an increasingly cost- and consumer-conscious ecosystem.”

Healthcare merger and acquisition deals were particularly key in long-term care in 2018.

Deals among long-term care providers have consistently accounted for at least 30 percent of deal volume since 2015, with at least 300 transactions occurring per year since then.

2018 was no different. Long-term care providers continued to establish new partnerships and they even exceeded their routine volume. Researchers reported that the sub-sector eclipsed the 400-deal threshold in 2018.

Healthcare organizations other than traditional providers like physician groups, hospitals, laboratories, and home health agencies also relied on healthcare mergers and acquisitions as a success strategy in 2018, the report showed.

A major deal in the “other” category was the acquisition of PillPack by Amazon. The online retail giant bought the pharmacy for about $1 billion in the summer of 2018.

Researchers found that Amazon’s move was just one of many mergers and acquisition deals occurring in the “other” category in 2018. In fact, the sub-sector was one of the largest in terms of deal value in 2018.

The Cigna-Express Scripts deal largely influenced the increase in deal value in the sub-sector. 2018 ended with the major payer acquiring Express Scripts for $67 billion. Cigna intends for the acquisition to help “transform the healthcare system” into one that provides more personalized, holistic care.

Researchers considered the deal as one of the three megadeals to occur in 2018. The other two were between KKR & Co. and Envision Healthcare Corporation ($9.9 billion) and RCCH HealthCare Partners and LifePoint Health, Inc. ($5.6 billion).

Non-traditional healthcare merger and acquisition activity was a major trend in 2018. But M&A moves among hospitals and provider groups also caught the industry’s attention.

Despite the attention given to major hospital merger deals, like the Beth Israel Deaconess Medical Center-Lahey Health merger and Dignity Health-Catholic Health Initiatives deal, PwC found that hospital mergers and acquisitions only represented seven percent of total deal volume and 10 percent of total deal value in 2018.

Physician group deals accounted for 20 percent of total deal volume and 10 percent of total deal value.

However, researchers noted that hospital deal value increased 107.4 percent compared to 2017.

In terms of other sub-sectors, the report showed:

• Behavioral care experienced the highest growth with 2018 volume and value growing 52.6 percent and 141.9 percent, respectively
• Rehabilitation saw volume and value declines of 20.4 percent and 87 percent, respectively
• Managed care deal value fell by 96.8 percent

Researchers project the healthcare merger and acquisition momentum to carry on in 2019.

“Deal activity is likely to continue given capital availability, potential for disruption from cross-industry alliances, and continuing long-term trends such as regulatory uncertainty, reimbursement pressure, and increased focus on the consumer,” the report stated. “However, deals are becoming more expensive, with multiples increasing for the seventh consecutive quarter.”