INDUSTRY INSIGHTS

H2C Industry Insights • 2018 in Review

Healthcare M&A Transactions Database

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.

SAN DIEGO

4655 Executive Drive

Suite 280
San Diego, CA 92121
858.242.4800

NEW YORK

623 Fifth Avenue
29th Floor
New York, NY 10022
212.257.4500

 

CHICAGO

311 South Wacker Drive
Suite 5425
Chicago, IL 60606
312.508.4200

 

ATLANTA

3333 Piedmont Road
Suite 725
Atlanta, GA 30305
404.937.1350

 

Healthcare M&A Shifts from Record Highs to Slower-but-Still-Active Pace, 2017-2018 

posted on Jan. 28, 2019
 

 

Healthcare mergers and acquisitions (“M&A”) volume didn’t break records as it did in 2017, but M&A activity remained high—especially among hospitals and health systems, post-acute care companies, behavioral health, and healthcare information technology (“IT”) companies. 

 

Data from Hammond Hanlon Camp’s (“H2C”) healthcare transaction database reveals strong depth in healthcare M&A activity in 2018, with 875 M&A transactions announced or closed in 2018, compared with 711 in 2017. These transactions included activity in all major healthcare services sectors:  hospitals and health systems, healthcare IT, senior care, home health and hospice, behavioral health, physician practices, ambulatory surgery centers and alternate site, and laboratories.  

 

The post-acute care sector led healthcare M&A activity in terms of volume, with a total of 244 transactions, down from 250 transactions in 2017. There was also strong volume in healthcare IT, with 116 transactions recorded, down from 170 in 2017. Hospitals and health systems recorded 90 announced transactions, down from 2017’s total of 134 announced deals. 

 

“M&A activity in the hospital, behavioral health, and healthcare IT sectors in 2018 reflect a strong focus on advancing population health management capabilities and increasing scale to reduce costs,” says Bill Hanlon, Principal, H2C. “Meanwhile, M&A among senior care facilities and home health agencies demonstrates intense interest in gaining greater control over the post-acute episode.” 

 

Other factors contributing to continued strong M&A activity include: 

 

  • A focus on partnerships that enhance capabilities around: 

    • Data analytics, including predictive analytics 

    • Precision medicine  

    • Population health management 

    • Meeting consumers’ expectations for care (e.g., access, experience) 
       

  • The need to increase scale to improve quality of care and reduce costs, particularly under value-based payment models 
     

  • The desire to expand control across the continuum of care, especially post-acute care 
     

  • Keen interest among private equity firms in acquiring behavioral health services providers and physician practices 

 

Healthcare M&A Volume Slows in 2018, 
But Still Remains Historically High

 Transactions reflect the desire to increase scale, gain greater control over the continuum of care, and enhance analytic capabilities.  

1Q17

 

33

 

 

45

 

 

79

 

 

10

 

 

70

 

 

6

4Q18

 

20

 

 

32

 

 

46

 

 

24

 

 

40

 

 

10

 

Hospitals

Announced

 

HCIT

Announced

 

LTC & Home Health

Announced

 

Behavioral Health

Announced

 

PPMs & ASCs

Announced

 

Labs

Announced

2Q17

 

40

 

 

44

 

 

50

 

 

8

 

 

48

 

 

9

3Q17

 

35

 

 

41

 

 

73

 

 

16

 

 

67

 

 

12

4Q17

 

26

 

 

40

 

 

48

 

 

12

 

 

57

 

 

6

2017

 

134

 

 

170

 

 

250

 

 

46

 

 

242

 

 

33

1Q18

 

32

 

 

26

 

 

81

 

 

6

 

 

72

 

 

7

2Q18

 

21

 

 

39

 

 

57

 

 

8

 

 

33

 

 

5

3Q18

 

17

 

 

19

 

 

60

 

 

13

 

 

37

 

 

6

2018

 

90

 

 

116

 

 

244

 

 

51

 

 

182

 

 

28

2018 Year in Review 

 

H2C M&A data for 2018 reveals several key themes. 

 

Larger hospital transactions dominated the 2018 M&A landscape. Notable transactions included agreements between LifePoint Health, Inc., and RCCH HealthCare Partners (which is owned by certain funds managed by affiliates of Apollo Global Management, LLC); Memorial Hermann Health System and Baylor Scott & White Health; and HCA Healthcare and Mission Health. These transactions are expected to close in 2019 pending approval. 

 

Mega systems turned to divestures to decrease debt. The past year saw numerous divestitures by two large health systems. Community Health Systems (NYSE: CYH), one of the largest for-profit hospital chains in the United States, announced 18 hospital divestitures in 2018, for a total of $400 million in gross proceeds, compared with the 30 hospitals it sold in 2017. Through proceeds realized on the sale of its assets, CHS has reduced its net debt by approximately $1.8 billion since the end of 2016. 

 

Meanwhile, Tenet Healthcare, another larger publicly traded hospital management company, announced the sale of four Chicago hospitals and a St. Louis hospital, along with its minority interest in multiple Baylor Scott & White facilities. 

 

Prioritization of ambulatory investments took shape. Even as some large systems divested assets, some of these same systems, such as Tenet, also planned to increase investment in ambulatory services. Ambulatory investments were viewed as a critical strategic move among healthcare organizations—particularly large systems. Ascension publicly announced an “advanced strategic direction” and hinted at plans to scale back hospital operations in favor of expanding its outpatient footprint.  

 

“We have witnessed large systems divest non-performing assets as well as begin to prioritize ambulatory investments over traditional bricks and mortar,” says Victoria Poindexter, Principal for H2C. “Historically, providers have benefitted from scale; however, at some point, the marginal benefit begins to diminish.”  

 

Senior care bankruptcies prompted major moves in the senior care space. In 2018, ProMedica acquired the operations of HCR ManorCare as a part of a joint venture to purchase the real estate from Quality Care Properties with Toledo-based REIT Welltower. The move was viewed as a lifeline for a SNF management team that was highly skilled, but capital starved. 

 

“We expect this sector to continue to be very active as both opportunistic and distressed sellers seek to take advantage of attractive pricing supported by demand from a growing group of well-capitalized buyers,” says Jay Miele, Managing Director for H2C. 

 

Private equity investment in behavioral health and physician practices gained momentum. Behavioral health investments increased from 46 to 51 from 2017 to 2018, as private equity investment continues to fuel activity in this space. Substance use disorder facilities comprised about 40 percent of behavioral healthcare transactions in 2018, with the remainder taking place across autism, eating and intellectual disability disorders.  

 

Private equity investment in physician practices such as anesthesia, dermatology, ophthalmology, GI, dentistry, and more has been a key catalyst for consolidation in some specialties. Dermatology and ophthalmology led private equity investment in physician practices, with continued trends toward consolidation in these specialties. 

 

Two of the largest M&A transactions taking place in 2018 occurred in the physician staffing space, with Summit Partners and Optum acquiring physician staffing company Sound Inpatient Physician Holdings for $2.2 billion and private equity firm KKR acquiring Envision Healthcare Corp. for $9.9 billion in cash and assumed debt. These moves strengthen the investors’ ability to provide high-quality ambulatory and post-acute care. 

 

Building analytic capabilities was a key focus for private equity investment. There were major moves by private equity investors to acquire healthcare software and data analytics companies, demonstrating the vital role analytics plays in population health management, identifying and addressing social determinants of health, and more: 

 

  • Private equity firm Veritas Capital (“Veritas”) purchased Cotiviti Health for $4.9 billion, combining Cotiviti with Verscend Technologies Inc., a healthcare IT company. 

  • Veritas also collaborated with Evergreen Coast Capital to purchase athenahealth for $5.7 billion, a deal announced in November 2018. 

  • Swiss pharmaceutical giant Roche Pharmaceuticals acquired Flatiron Health for $1.9 billion, which boasts a cancer-centric electronic health records platform linked to 250 oncology practices and the big-data capabilities needed to support oncology research and development. 

 

Amazon continued its move into healthcare. Amazon acquired online pharmacy PillPack in a deal rumored at $1 billion. PillPack, which helps consumers with multiple medications better manage their medications and markets its ability to fill claims quickly, is known for a highly personalized approach to prescription drug management. 

 

Large standalone pharmacy benefit managers seek merger partners. The last standalone pharmacy benefit manager, Express Scripts, merged with Cigna in December 2018. Acquisitions of pharmacy benefit managers by health plans reflect a desire to monitor not only a member’s medical costs, but also the member’s prescription usage. 

 

Investments in hospice and home health created powerhouse providers. Humana collaborated with private equity firms TPG Capital and Welsh, Carson, Anderson & Stowe to acquire Curo Health Services (“Curo”) and Kindred Healthcare (“Kindred”) for $1.4 billion and $4.1 billion, respectively. By combining Curo with Kindred’s hospice care arm, the deal positions these investors to create the country’s largest hospice care operator. Meanwhile, the merger of Great Lakes Caring, National Home Health Care, and Jordan Health Services, owned by private equity firms Blue Wolf Capital Partners (“Blue Wolf”) and Kelso & Company (“Kelso”), created one of the largest providers of home health services in the United States, recently renamed Elara Caring.  

 

Questions? Gain Expert Insight 

 

If your organization is considering evaluating options and opportunities, H2C is uniquely positioned to offer guidance. Let us put our market knowledge and expertise to work for your institution. Contact an H2C professional directly or send an email to inquiries@h2c.com.