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Thank you for visiting HealthcareBanker.com a news aggregator of middle-market mergers and acquisition activity in the healthcare industries. This site addresses investment banking topics dealing with M&A, Capital Raising, Borrowing/Lending and other Corporate Development and Finance activities within the Healthcare Services, Healthcare IT, Medical Device, and Life Science industries.

Monday, February 8, 2016

Healthcare to Lead M&A in 2016


Six Industries Primed for M&A Activity in 2016


(from IBISWorld Healthcare Sector)

The healthcare sector is one of the most active regarding M&A activity in the United States. In the first half of 2015, the sector represented 25.2% of the total value of announced deals; this was enough to make it the largest segment at the time. Industries in the healthcare sector have traditionally remained fragmented and separate from one another. However, in the midst of profound regulatory changes, mainly driven by the implementation of the Patient Protection and Affordable Care Act (PPACA), sector operators are scrambling to adjust. In the five years to 2016, deferral funding for Medicare and Medicaid has grown at an anticipated average annual rate of 4.3%.

In particular, a tightened reimbursement environment is making it difficult for operators in the $1.0 trillion US Hospitals industry. In general, hospitals are consolidating to reduce costs by gaining better negotiating power with suppliers and payers. This is perceived as necessary given that purchases account for just over 30.0% of the industry’s nonwage related costs. Moreover, reimbursement from government programs has grown at a slow pace, and therefore, hospitals have increasingly sought favorable contracts with nongovernment payers, including health maintenance organizations, preferred provider organizations and other managed-care plans. As a sign of increased consolidation over the coming years, the number of industry establishments per enterprise is expected to climb at an annualized 2.3% over the five years to 2020.

Similarly, the Health and Medical Insurance industry has recently undergone consolidation and cross-industry M&A activity to improve their operations. As a result, in 2016, the number of industry enterprises is projected to fall 0.6%, while establishment figures will grow 1.6%, according to IBISWorld data. Although regulation remains a vital catalyst for insurance providers, many believe that recent M&A activity presents a shift toward more vertical structures and highlights a natural shift toward a more consumerist approach to healthcare. By localizing healthcare systems and combining technologies, data-systems and personnel, both hospitals and health and medical insurance providers hope to move toward a value-based model with increased market presence and some costs reductions. For example, Aetna (accounting for 8.3% market share in the Health and Medical Insurance industry) agreed to buy Humana (7.5% market share), while Allina Health (a network of hospitals) agreed to acquire the healthcare data-analysis company, Health Catalyst. Moving forward, healthcare valuations will likely remain strong as demand for M&A deals at high prices remains.

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