Last year was a record setting year in worldwide merger and acquisition activity across multiple industries, and healthcare was a big part of that.
Last year was a record setting year in worldwide merger and acquisition (M&A) activity across multiple industries, and healthcare was a big part of that.
As a matter of fact, one global report cites healthcare and pharmaceutical deals totaled $288 billion in 2021 which was a 38% increase over 2020. Several of these healthcare mergers were initiated by SPACs (special purpose acquisition company) and this is a trend we can expect to continue in the first half of 2022 - based on potential regulatory changes that may be enacted later in the year. But that is not the only reason we can expect to see an upswing in healthcare industry M&A.
Biotechnology, data, medical devices, and pharmaceuticals are all receiving intense scrutiny from potential buyers. Larger companies, flush with cash and deep pockets, believe the purchase of smaller players is a way to gain a competitive advantage in terms of scale. According to one leading investment advisory service, the company Shockwave Medical, a maker of cardiovascular medical devices, is drawing interest from fellow device maker Penumbra, as well as heavy hitters Abbott Laboratories, Abiomed, Boston Scientific, and Medtronic.
While the three-legged issues of inflation, labor shortages, and supply chain are causing sleepless nights for those in other industries, healthcare will most likely avoid the fray and enjoy a continued momentum of new deals. One of the primary reasons for this is the focus upon digital assets of what is being categorized as “health-tech” that has such appeal. Reporting by market intelligence firm CB Insights stated global digital health investment hit an all-time high of $57.2 billion in 2021.
Organizations are looking for deals focusing on technical capabilities that will improve both their internal efficiencies while enhancing provider and patient care. Telemedicine is a terrific example. Before the COVID pandemic, this was available but used infrequently. Now fully embraced, doctors are scheduling hundreds of web-appointments per month.
The adaptability by both providers and patients of virtual care, along with insurers and government agreeing to provide reimbursement for these services, created a virtual medical marketplace. Combine this with advances in remote healthcare sensing and monitoring, and we see new models of patient care which are having a growing impact on investors and C-suites.
The pandemic turbocharged the acceleration of healthcare driving into the digital age. Healthcare IT that encompasses data analytics and makes use of predictive modeling is now being used to identify trends across multiple demographic groups while at the same time cutting costs systemwide. Businesses with a focus on this data are also prime targets for healthcare companies seeking to grow through acquisition.
This express demand for health-tech, and the amount investors are willing to pay, might also benefit hospitals and health systems. Technology that allows more direct-to-consumer healthcare delivery options could spur health systems to initiate long delayed improvements to the overall patient experience including scheduling, intake paperwork, communications, and more transparent billing.
The healthcare buying escalation is expected to also reach physician practices. The potential for growth and regular cash flow represented by these practices can be very attractive to private equity firms. One of the key potential benefits for practice owners who entertain an acquisition will be in the area of lessening administrative hurdles so they can focus on patient care. Private equity also provides an infusion of cash that can be used to purchase new equipment and upgrade facilities.
The pandemic is now entering its third year and it has forced the healthcare industry to adapt and innovate at a pace faster than anyone could imagine prior to COVID. This in turn has quickened the pulses of dealmakers and investors. While there are factors, both economic and regulatory, that could cause a slowdown, the trend is upward as 2022 is giving us a prescription for growth.
David Braun is founder and CEO of Capstone Strategic, a leading M&A strategic consulting firm that has successfully facilitated over $1 Billion of client transactions in over 30 countries across more than 100 industries including healthcare and medical institutions, services and products.