June 7, 2017
A new president is in the White House, and so far, the new administration hasn’t put the brakes on healthcare M&A. During Q1 2017, 239 healthcare deals were announced, on par with the 240 deals that were announced in Q1 2016, according to Manatt Healthcare.
The trends for 2017 year-to-date are similar to those seen in 2016, which recorded 939 healthcare industry deals valued at an aggregate of $71.7 billion. Long-term care, healthcare IT, physician practices, and hospitals represent the bulk of activity. Recently, Steward Health Care and IASIS Healthcare announced a merger, which would make the combined system the largest private for-profit hospital operator in the United States, with 36 hospitals across 10 states and projected revenues of nearly $8 billion in 2018.
Manatt notes that M&A activity in the managed care and pharmaceutical spaces is more modest. Two huge deals—Anthem/Cigna and Aetna/Humana—fell through.
Many of the drivers for healthcare M&A are macroeconomic such as a reviving economy, relatively low interest rates, and available cash reserves for investors and potential buyers.
Drivers that are specific to healthcare include: the need for providers and managed care organizations to increase revenue and cash flow; continued consolidation that creates negotiating leverage between payers and providers to achieve cost savings; and the shift from the fee-for-service model to population health management.
Hospitals and health systems are particularly interested in M&A deals because they want to build or expand integrated delivery systems, and need funds to continue to innovate and invest in technology to effectively deliver healthcare.
For questions, comments or concerns, please contact Jennifer Duell Popovec