Healthcare M&A Trends

Wow, this has been a busy time for M&A activity in the healthcare industry! Over the past year, healthcare companies in the S&P 500 have risen 26% with gains being fueled by strong earnings and revenue. Healthcare currently ranks second as the most expensive sector in the S&P 500 and stocks here are trading at 23.4 times the past 12 months of earnings.

We have seen acquisitions in the pharmaceutical sector for years and that will surely continue for some time. Additionally, there have been the widely publicized potential mergers in the health insurance world . . . Anthem wants Cigna, and United wants Aetna who wants Humana.

The shakeup in other sectors of the healthcare industry is indeed noteworthy as well as the shifting focus over the past couple of years. Here’s a look at some of the numbers.

Long-Term Care has led the healthcare sector in transaction volumes for the past three years, with 2014 raking in a lot of movement at nearly 300 transactions totaling over $29 billion. Last year’s transaction value was nearly triple that in 2013 and 2012. Much focus was given to hospitals recently and that sector’s numbers tell an interesting story. There was a huge spike in transaction value ($19 billion) in 2013, though that was the lowest volume in the past three years. The hospital sector’s transaction volume and value in 2014 is equivalent to 2012. Perhaps because many hospital big deals have since occurred explains why 2014 transaction value was a mere 14% of 2013’s peak.

The healthcare sector of dialysis, labs, and MRI saw a surge in transaction value last year to $11 billion which is 5.5 times greater than the previous two years. The volume of transactions, however, has fallen off rather sharply over recent years.

Physician groups, home health, and hospice transactions are relatively small compared to the long-term care and hospital sectors. Of note is that the number of transactions of physician groups has been steadily declining over the past three years whereas home health and hospice transactions have been steadily increasing over the same timeframe.

Lastly, the rehabilitation and behavioral care sectors have held relatively flat in their transactions over the 2012-2014 timeframe. The managed care sector has also been lukewarm since a spike in 2012 yielded nearly $19 billion in transaction value.

There is no doubt that we will continue to see much M&A activity in the U.S. healthcare industry mostly due to healthcare reform legislation and technology costs. The U.S. Supreme Court ruling (either way) on the Affordable Care Act will most likely have a significant impact on several sectors within the healthcare arena.

What are your predictions on various healthcare sectors?


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