H2C Industry Insights • 2Q19 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 and 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, visit h2c.com.
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Exhibit 1: Q2 2019 Healthcare M&A Activity
posted on August 1, 2019
Healthcare mergers and acquisitions increased 10 percent from Q1 to Q2 2019 and outpaced Q2 2018 activity by 18 percent, research by Hammond Hanlon Camp LLC (“H2C”) shows. In Q2 2019, 192 transactions were recorded, compared with 174 in Q1 2019 and 163 in Q2 2018, with behavioral health continuing to be the sector driving growth.
Among notable trends:
Behavioral health transaction volume accelerated to 27 transactions in Q2 2019 following a strong Q1 2019 (16 transactions). The year-to-date volume of 43 transactions represents 207 percent growth versus the first six months of 2018. Private equity investment in behavioral health continues to drive activity in this space.
Healthcare IT transactions outpaced Q1 2019 activity by 10 percent and are on par with year-to-date (“YTD”) 2018 figures. Increased activity in this space reflects continued interest in bolstering digital health capabilities as well as continued investment in analytics. Strong investor demand, coupled with a rapidly changing HCIT landscape, should position the subsector to remain active for the foreseeable future.
M&A activity among hospitals and health systems partially slowed in the second quarter, bringing YTD sector volume to 41 announced transactions versus 52 announced transactions in the first six months of 2018. H2C research shows targets with less than $100 million in revenue continued to lead M&A activity in this space as smaller systems actively seek to join larger systems.
M&A activity among long-term care and home health facilities as well as laboratories was nearly consistent with YTD 2018 figures.
Following a decrease in physician practice management (“PPM”) and ambulatory surgery center (“ASC”) activity in Q1 2019, PPM and ASC sector rebounded with 38 transactions. This represents a 15 percent increase over Q2 2018 (33 transactions).
Q2 2019 Maintains Strong Pace
for Healthcare M&A
One of the most notable sectors, behavioral health, continues to be highlighted by strong private equity activity, specifically in the autism and substance abuse spaces. Q2 transactions followed a theme of add-on acquisitions by financials sponsors. M&A volume continues to benefit from an attractive reimbursement environment and increased public support. In the 2018 bill H.R. 6—Support for Patients and Communities Act—Congress calls for the Centers for Medicare & Medicaid Services to “establish a demonstration project to increase provider treatment capacity for substance-use disorders.” The bill also “temporarily requires coverage of medication-assisted treatment under Medicaid” and “increases the maximum number of patients that health care practitioners may initially treat with medication-assisted treatment.”
Notable M&A transactions in Q2 2019 include the following:
West Virginia University Health System (“WVUHS”) announced its third transaction of 2019 and fourth in the past 12 months with its affiliation with Barnesville Hospital, which went into effect on June 1, 2019. The previous three transactions included a management agreement with Summersville Regional Medical Center (January 2019) and the acquisitions of Jackson General Hospital (January 2019) and Braxton County Memorial Hospital (August 2018).
Sanford Health and UnityPoint Health have signed a letter of intent to form an $11 billion integrated health system. The combined entity would rank among the top 15 not-for-profit health systems by revenue. It would feature 76 hospitals across 26 states and nine countries and employ more than 83,000 staff and 2,600 physicians. This transaction adds another data point toward the regional-vs.-national network discussion. Combinations such as Advocate Aurora Health and NorthShore University HealthSystem's pursuit of Swedish Covenant Hospital look to establish a dominant position in their region, while organizations like CommonSpirit Health and Sanford Health/UnityPoint seek to leverage a national network to boost access and expedite technology and capital investments.
LabCorp’s Covance Drug Development segment completed its acquisition of Envigo’s nonclinical contract research services business, expanding Covance’s global nonclinical drug development capabilities with additional locations and resources. Meanwhile, Envigo’s Research Models and Services business has completed the acquisition of the Covance Research Products business, creating an organization dedicated to offering a full range of research models, diets, and bedding. The two companies will continue to collaborate through a multi-year, renewable supply agreement as they seek to specialize (LabCorp now has more nonclinical contract research capabilities and less of a product research focus, while the opposite is true for Envigo).
The second quarter also presented an uptick in S-1 filings from HCIT companies seeking to execute initial public offerings (“IPOs”). Change Healthcare (which successfully filed its IPO in late June), Livongo, Health Catalyst, and Phreesia all accessed public equity markets as opposed to executing traditional sell-side M&A transactions. It has been approximately three years since the last HCIT IPO, when iRythm issued an IPO in October 2016.
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LTC & Home Health
PPMs & ASCs
Total 223 163 152 169 174 192
Note: Historical figures are revised downward for cancelled transactions