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Thursday, December 13, 2018

High Valuations Not Detering M&A In Healthcare IT

Healthcare IT Investment is Overvalued, But Will Increase Next Year

(from HealthLeaders)

While most healthcare industry players believe healthcare IT is an overvalued subsector, they still expect investment to rise in 2019, according to the KPMG-Leavitt Partners 2019 Investment Outlook survey.

More than 60% of healthcare professionals view healthcare IT asset prices as overvalued but also expect the subsector to grow faster than the overall healthcare market, according to a new survey released by KPMG-Leavitt Partners Monday morning.Thirty four percent of respondents favored investing in healthcare IT, leading the way over subsectors such as care management, home health services and retail-centric medical groups, among others. Additionally, 62% of respondents expect healthcare IT investment to outpace the overall healthcare market and 75% describe the current healthcare IT market as increasing in competition.

Some of the driving forces behind the direction of healthcare IT investment has been healthcare organizations orienting their business models to handle the effects of consumerism, such as receiving care outside of the traditional hospital, changing payment models, and the introduction of corporate disruptors.

More than 95% of respondents indicated that the healthcare IT subsector will experience "a moderate amount" or "a lot" of investment activity in 2019, with only 4% expecting "a little" investment activity.

Yet despite the optimism for investment growth in healthcare IT, 64% of respondents also described the healthcare IT market as overvalued and more than 90% of respondents expect the subsector's valuations to stay the same or rise next year.

"We are not surprised by the great deal of interest in health care IT and care delivery outside the hospital,” former HHS Secretary and Utah Governor Mike Leavitt, founder of Leavitt Partners, said in a statement. “As health care continues to march toward value, the emphasis on moving care to lower cost sites and enhanced coordination will continue, and those who can increase quality and lower cost will win."

The Leavitt survey also delved into the current state of the healthcare market and what industry players expect to drive M&A activity in 2019.

The only factor that more the majority of respondents agreed upon, (64%), was that cost consolidation and the economies of scale will be the largest driver of M&A activity, followed by accretive acquisition strategies at 45%, and changing payment models at 41%.

Respondents also expressed faith in the current state of the healthcare market though some acknowledge the potential for a bubble to burst in the near future.

Current status update:

41% moderate bubble
24% neutral
19% moderate fundamentals
9% bubble likely to burst
6% strong fundamentals 

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