H2C Industry Insights • 1Q19 Healthcare M&A Transactions Database
Q1 2019 was quite active for hospital and health system M&A—especially for smaller systems.
Q1 2019 Sets Strong Pace for Healthcare M&A
"The consolidation trend among smaller hospitals and health systems that has continued into the first quarter of 2019 is a sign of the increasing challenges faced by those organizations —particularly rural hospitals—in a transformative environment."
- Bill Hanlon
posted on May 23, 2019
Small hospital and health system transactions dominated healthcare merger and acquisition (M&A) activity in the first quarter of 2019, as more than half of the transactions involved targets with less than $100 million in revenue, research by Hammond Hanlon Camp LLC (“H2C”) shows.
Overall, Q1 2019 M&A activity was 20 percent lower than in Q1 2018, but still strong, with 178 transactions, compared with 223 transactions in Q1 2018.
Among notable trends:
Behavioral health transactions in Q1 2019 more than doubled activity in Q1 2018, with private equity investment in behavioral health continuing strong 2018 momentum.
Healthcare IT transactions outpaced Q1 2018 activity by 15 percent, reflecting growing interest in bolstering digital health capabilities and continued investment in analytics.
Activity among hospitals and health systems, long-term care and home health facilities, and laboratories was nearly consistent with Q1 2018 figures.
Meanwhile, the largest drop in activity came in the ambulatory surgery center (ASC) and physician practice management (PPM) sector, with just 26 transactions, down from 72 in Q1 2018 (see Exhibit 1 below).
Exhibit 1: Q1 2019 Healthcare M&A Activity
LTC & Home Health
PPM & ASCs
“The consolidation trend among smaller hospitals and health systems that has continued into the first quarter of 2019 is a sign of the increasing challenges faced by those organizations —particularly rural hospitals—in a transformative environment,” said Bill Hanlon, Principal, H2C.
With a market ripe for consolidation, private equity dollars continued flowing into the post-acute space in Q1 2019 as firms sought platform investments to consolidate smaller operators. “Given demographic tailwinds, relative cost advantages, and a favorable Medicare reimbursement environment for players with scale, H2C expects investor appetite in the post-acute care sector to remain robust,” said Victoria Poindexter, Principal, H2C. “Patients continue to prefer home care, while payers acknowledge the benefits of home care.”
As smaller players struggle to manage costs and staffing, H2C expects continued strong M&A activity among LTC and home health organizations.
While ASC transaction volume was low in Q1 2019 compared with both Q4 2018 (40 transactions) and Q1 2018 (72 transactions), ambulatory investments continue to be viewed as a critical strategic move among healthcare organizations—especially large health systems. Last year, large systems such as Tenet planned to increase investment in ambulatory services even as they divested other assets.
“Activity in the behavioral health sector remains robust as demand grows and the highly fragmented sector continues to consolidate,” said Rich Bayman, Principal, H2C. “We are seeing demand increase across all services—inpatient and outpatient, acute psychiatric services, and specialty treatment facilities, including substance abuse and eating disorders. Unfortunately, the healthcare system is not currently configured to handle the explosion in demand, and much of the burden is falling on health system emergency departments."
Notable activity in Q1 2019 include:
Western Maryland Health System’s plans to affiliate with UPMC. The move will broaden Pittsburgh-based UPMC’s geographic footprint.
KPC Group’s planned acquisition of four Southern California hospitals owned by Verity Health. KPC Group is the parent company of KPC Health, which operates seven hospitals in Southern California.
A planned merger between Palos Health, an independent health system in Palos Heights, Ill., with Loyola Medicine, based in Maywood, Ill., will no longer take place, the systems announced on May 1. Currently, the systems have an academic affiliation, formed in 2015, that enhances Palos’ clinical care and services while enabling the system to remain independent.
If your organization is considering evaluating options and opportunities, H2C is uniquely positioned to bring market insight and expertise to your decision process. Let us put our market knowledge and expertise to work for your institution. Contact an H2C professional directly.
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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