Most active sector as buyers rush to build scale and distressed owners look for exits
H2C Industry Insights • 1Q18 Healthcare M&A Transactions Database
Hammond Hanlon Camp LLC Releases its 1Q18 Healthcare M&A Transactions Database
posted on May 15, 2018
About Hammond Hanlon Camp LLC
Hammond Hanlon Camp LLC (“H2C”) is an independent strategic advisory and investment banking firm committed to providing superior advice as a trusted advisor to healthcare organizations and related companies throughout the United States. H2C’s professionals have a long track record of success in healthcare mergers & acquisitions, capital markets, real estate and restructuring transactions, acting as lead advisors on hundreds of transactions representing billions of dollars in value. Hammond Hanlon Camp LLC offers securities through its wholly-owned subsidiary H2C Securities Inc., member FINRA/SIPC. For more information, go to h2c.com.
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“Over half of the announced hospital transactions in Q1 involved community hospitals joining larger systems. While not the only factor, tax reform influenced this trend by increasing the cost of capital and reducing already thin margins for smaller, independent hospitals.“ -Bill Hanlon, Principal at H2C
CHICAGO — Hammond Hanlon Camp LLC (“H2C”), a healthcare-focused, independent strategic advisory and investment banking firm, announces the release of its 1Q18 Healthcare M&A Transactions Database. Updated quarterly, the database is a wide-ranging compilation of transaction activity that shows the depth of merger and acquisition activity in health care. Included in the database are details on transactions announced in Q1 2018, including activity in all major services sectors: hospitals and health systems; healthcare IT; long-term care; home health; behavioral health; ambulatory surgery centers; and laboratories.
There were 149 transactions in the first quarter of 2018, which reflects a slightly slower pace when compared to the 163 transactions in the first quarter of 2017, but we note that 2017 annual transaction volume was the highest in recent history. While the first quarter was not as active as the prior year, 2018 is still positioned to be a very active year.
20 hospital and health system transactions were announced in the first quarter, the same number of transactions announced in the first quarter of 2017. “Over half of the announced hospital transactions involved community hospitals joining larger systems. While not the only factor, tax reform influenced this trend by increasing the cost of capital and reducing already thin margins for smaller, independent hospitals,“ said Bill Hanlon, Principal at H2C. Among larger organizations, notable transactions included the merger of Bon Secours Health System (MD) and Mercy Health (OH), creating a system with over $8 billion in annual revenue and 43 hospitals.
Although the trend of mega-mergers continued, Ascension publicly announced an “advanced strategic direction” and hinted at plans to scale back hospital operations in favor of expanding its outpatient footprint. “Historically, providers have benefitted from scale, however, at some point the marginal benefit begins to diminish,” noted Victoria Poindexter, Principal at H2C. “We have witnessed large systems divest non-performing assets as well as begin to prioritize ambulatory investments over traditional bricks and mortar.”
The long-term care sector also experienced a tumultuous quarter. A flurry of consolidation activity resulted in 87 announced transactions—an increase of 10% from the previous year. Some of the traditionally active players were stuck on the sidelines, dealing with their own financial issues. HCR ManorCare, the nation’s second largest skilled nursing chain, plans to shed 74 facilities in 2018 to repay debtors post bankruptcy. In May, after the end of the first quarter, ManorCare agreed to an acquisition of its assets by a partnership between Welltower and ProMedica Health. H2C will closely monitor the sector for activity in the second quarter. “We expect this sector to continue to be very active as both opportunistic and distressed sellers seek to take advantage of the attractive pricing supported by the demand from a growing group of well-capitalized buyers” observed Jay Miele, Managing Director at H2C.
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