From Blue Shield of California’s recently-announced purchase of a Medicaid plan to Partners HealthCare’s hard-fought effort to fold more hospitals into its Massachusetts health system, the volume of mergers and acquisitions in the health- care sector has steadily climbed and now exceeds M&A activities in all other U.S. industries.
Growth is being driven by payers and providers seeking new business opportunities, says Steven Valentine, MPA, president of The Camden Group, a national healthcare consulting company. “Plans, medical groups, hospitals—everybody’s shooting for leverage,” he says.
As a result, 2015 promises to be a year of “partnering to win,” asserts PricewaterhouseCoopers (PwC).
“Joint ventures, open collaboration platforms and non-traditional partner- ships will push healthcare companies out of the comfort zone in 2015 toward new competitive strategies,” the firm’s Health Research Institute predicts.
Estimates vary on the volume of 2014 healthcare consolidation activity depending on how it is tracked, but there is con- sensus that spending on healthcare M&A is robust and rising:
Dealogic, which analyzes investment banking trends, reported 898 transactions totaling $308 billion in the U.S. healthcare sector through December 16, accounting for nearly one in five M&A deals. Of 11 subsectors tracked, the firm cited 166 deals among hospitals and clinics worth nearly $4.2 billion.
Irving Levin Associates, Inc., a market analysis firm in Norwalk, Connecticut, reported 1,208 deals across 13 healthcare sectors in 2014 through December 19, up 17% from 2013. Acquirers committed more than $386 billion for the term, a 136% increase over 2013’s total of $163 billion. The firm cited 21 managed care M&A transactions in 2014, up 40% from 15 such deals in the previous year.
Against this backdrop, various industry experts echo PwC’s forecast.
“It’s hard to say by how much, but (2015) should be a busy year,” says Jordan Shields, MBA, a vice president at Juniper Advisory LLC, an investment banking firm that specializes in M&A activity for the nonprofit hospital industry. Shields anticipates that the volume of such deals will be up in 2015 compared to 2014. He also expects to see non- transaction hospital activity, including cost-sharing affiliations and management agreements, carry over from 2014 levels. As an example, Shields cites three major health systems in North Carolina—Vidant Health in Greenville, Wake Forest Baptist Medical Center in Winston-Salem and WakeMed Health & Hospitals in Raleigh— that formed a shared services operating company in September, 2014. While not a merger or acquisition, the deal combines back-office operations and some quality initiatives.
“They’re not sharing governance or ownership, but they’re trying to achieve more scale,” Shields says. “We’re seeing more of (this activity), and I think it will continue.”
Such deals provide a short-to-medium-term, less than 10-year fix, he adds. “It can be hard for strong organizations to give up governance, to give up control, so these affiliations fill a need... But they only get you part of the way there. They’re reliant on your partner continuing to feel the same way. They’re not stable over the long term.”