- Healthcare merger and acquisition activity was still trending up in the third quarter of 2018, but deal value dipped, the most recent US Health Services Deals Insights report from PricewaterhouseCoopers (PwC) showed.
PwC recorded 261 healthcare merger and acquisition deals in Q3 2018, slightly lower than the average of the preceding seven quarters (264 deals).
However, the number of deals was “still robust in historical terms,” the report stated. Quarterly healthcare merger and acquisition activity levels have exceeded 200 deals since the last quarter in 2014 and they have exceeded the 250 deal-mark for five consecutive quarters.
On the other hand, deal value hit the lowest level since the first quarter of 2017. Total deal value fell 35.8 percent compared to the previous quarter and 10.1 percent compared to the previous year.
“While overall deal value has decreased in the recent quarter, volume levels remain strong across numerous sub-sectors both in the Corporate and Private Equity arenas. We expect this momentum to carry through the remainder of 2018, and beyond, as the pool of potential acquirers continues to expand,” stated Thad Kresho, US Health Services Deals Leader at PwC.
The healthcare industry is seeing private equity firms getting more involved in healthcare mergers and acquisitions, the report showed. PwC reported two high-value healthcare merger and acquisitions deals involving private equity firms. Deal prices of both transactions were at least $100 million.
The first private equity deal occurred in July 2018. At that time, TPG Capital LP acquired laboratory, MRI, and dialysis company Healthscope Ltd’s Asian pathology business for $0.2 billion.
In August 2018, private equity firm Arcapita purchased two Continuing Care Retirement Communities in conjunction with Senior Care Development LLC. The deals totaled $0.1 billion.
Healthcare merger and acquisition deals in the hospital sub-sector also increased in 2018’s third quarter, the report stated. Notably, the one megadeal occurring in Q3 2018 involved two hospital systems.
The megdeal exceeding $5 billion in the third quarter of 2018 was the transaction between Apollo Global Management’s portfolio company RCCH HealthCare Partners and LifePoint Health, Inc., which operates non-urban hospitals and facilities.
RCCH HealthCare Partners acquired the hospital operator for about $5.6 billion in July 2018, making the transaction the first megadeal in the hospital sub-sector since the third quarter of 2016. The deal accounted for 35 percent of the total disclosed deal value in Q3 2018.
While Q3 2018 saw just one megadeal, PwC pointed out that the level is in line with the average observed since 2015. Since 2015, one megadeal has occurred per quarter.
The third quarter of 2018 also saw several other high value hospital merger and acquisition deals. For example, HCA Healthcare acquired Mission Health for $1.5 billion in August 2018 and IHH Healthcare Bhd purchased Fortis Healthcare for $0.6 billion in July 2018.
Alongside the RCCH HealthCare Partners-LifePoint Health deal, the high-value hospital mergers and acquisitions helped to boost deal value in the hospital sub-sector. The hospital merger and acquisition deals actually helped the sub-sector achieve the greatest deal value compared to all other sub-sectors for the first time since 2016.
Hospital merger and acquisitions deals in Q3 2018 totaled $8.2 billion, representing slight one -one-half (51 percent) of total deal value in the quarter.
As 2018 draws in a close, PwC expects to see more cross-sector healthcare merger and acquisition deals, especially with the Justice Department approving large cross-sector transactions. The federal department recently ruled in favor of the Cigna Corporation-Express Scripts Holding Company merger, as well as the CVS Health Corp.-Aetna Inc. deal on condition the payer divests its Medicare Part D business.
Other disruptive deals like Amazon’s venture with Berkshire Hathaway and JPMorgan Chase & Co. should also spur more cross-sector healthcare merger and acquisition deals.
“Cross-industry and vertical integration-focused deals are driving Health Services companies to rethink corporate strategies and alliances,” the report stated.
Increasing healthcare costs and falling inpatient volumes will also prompt healthcare organizations to consider new partnerships, if not a full merger or acquisition, PwC predicted.
“Inpatient volume pressure and high costs – particularly in drug and labor line items – are driving reevaluation of facility mixes, supply chains and staffing processes,” the report stated. “Health Services companies are considering new or modified partnership models, as well as divestitures of non-core assets. Regionally-focused deals are also likely to continue, as the example of the announced Jefferson and Einstein Healthcare Network merger demonstrates.”
New healthcare merger and acquisition deals will also likely prioritize patient retention, researchers added.
“Patient and consumer retention are an ongoing priority, particularly as Health Services companies focus on value-based care and population health management,” the report concluded. “Health Services companies could focus on deal targets with assets that facilitate data collection, mining and interpretation, as well as user-friendly experiences.”