H2C Industry Insights • 3Q19 Healthcare M&A Transactions Database
Q3 2019 maintained a steady pace of hospital and health system M&A, with a number of distressed sales.
Thirty-five HCIT transactions were announced in Q3 2019, outpacing both Q1 and Q2 2019.
Q3 2019 activity remained steady, with 66 transactions, bringing the year-to-date total to 209.
Behavioral health transactions through September 2019 more than doubled transactions through September 2018.
Investment in physician practice management and ambulatory surgery centers continued to surge in Q3 2019.
Q3 2019 Maintains Strong Pace
for Healthcare M&A
posted on Nov. 6, 2019
Healthcare mergers and acquisitions (“M&A”) increased 12 percent from Q2 to Q3 2019 and outpaced Q3 2018 activity by 41 percent, research by Hammond Hanlon Camp LLC (“H2C”) shows.
In Q3 2019, 214 transactions were recorded, compared with 191 in Q2 2019 and 152 in Q3 2018. HCIT transactions and continued strong physician practice management and ambulatory surgery center volume helped to drive growth.
Among notable trends:
Behavioral health transaction volume remained active, with 21 transactions in Q3 2019 following a strong Q2 2019, with 27 transactions. The year-to-date (“YTD”) volume of 64 transactions represents 137 percent growth versus the first nine months of 2018. Private equity investment in behavioral health continues to drive activity in this space.
Healthcare IT transactions continued at a robust pace, with 35 transactions announced in Q3 2019 versus 33 transactions announced in Q2 2019 and 30 transactions in Q1 2019. YTD 2019 figures are up 17 percent versus YTD 2018. Deal volume has largely been driven by transactions involving companies with SaaS-based product offerings, which accounted for more than 55 percent of all transactions.
M&A activity among hospitals and health systems remained steady in the third quarter, bringing YTD sector volume to 61 announced transactions versus 69 announced transactions in the first nine months of 2018. A number of distressed transactions were announced this quarter, including St. Christopher’s Hospital for Children in Philadelphia, Massena Memorial Hospital in Massena, N.Y., Jewish Hospital in Louisville, Ky., Cumberland River Hospital in Celina, Tenn., and Fayette Regional Health System in Connersville, Ind. Concurrently, many deals announced earlier in 2019 remain “in limbo” as they await regulatory approval.
M&A activity among long-term care and home health facilities as well as laboratories shows a slight increase over the first nine months of 2018, with YTD 2019 figures up 6 percent (209 transactions) and 17 percent (21 transactions), respectively. The senior housing industry remains optimistic about acquisitions of existing properties and repositioning of older facilities, according to Capital One’s annual survey of senior housing and long-term care executives. Thirty-six percent of surveyed executives stated that acquisitions presented the most opportunity for growth, with 30 percent naming repositioning as the top option.
Physician practice management (“PPM”) and ambulatory surgery center (“ASC”) YTD activity is still down approximately 12 percent versus YTD 2018, but Q3 2019 volume surged to 62 transactions, up from 37 transactions in Q2 2019. The sector continues to be characterized by small transactions (one or two facilities), but several established networks are beginning to gain size. With a push toward outpatient procedures and new Centers for Medicare and Medicaid Services (“CMS”) reimbursement rates, ASCs will continue to be an attractive sector for investment and consolidation.
Exhibit 1: Q3 2019 Healthcare M&A Activity
LTC & Home Health
PPMs & ASCs
Total 223 163 152 167 173 191 214
Note: Historical figures are revised downward for cancelled transactions
Following the IPO of Change Healthcare in June 2019, the third quarter saw four additional HCIT IPOs, including Health Catalyst, Phreesia, Livongo, and Peloton. Subsequent to the successful public market debut of these companies, Progyny, a fertility benefits management company, released its S-1 with plans to enter the public market by the end of fiscal year 2019. Through the transaction, the company expects to raise approximately $184 million at an initial offering price range of $14.00 to $16.00 per share.
Notable M&A transactions and partnerships in Q3 2019 include the following:
The University of Louisville (“UL”) board approved a deal to take over Jewish Hospital and KentuckyOne Health's other Louisville assets, which include three more hospitals and four outpatient centers, on Aug. 14. In an interesting twist, the acquirer, UL, will receive a net $126 million in the deal and will pay KentuckyOne $10 million for the assets. KentuckyOne will forgive the $19.7 million UL owes for software under a previous arrangement. KentuckyOne will also transfer $76.4 million in working capital to UL and provide $40 million to UL over four years. UL will also receive $10 million from the Jewish Heritage Fund for Excellence and a partially forgivable $50 million loan from the state. The organizations closed the deal on Nov. 1.
Walmart Health and Amedisys entered into a new partnership to expand healthcare access nationwide. Already, Walmart has opened its first 10,000 square-foot health center in Dallas, Ga. The location is adjacent to a Walmart store there. The prototype clinic features an Amedisys kiosk, which is designed to help educate customers and potential patients on the home health services it provides. With approximately 90 percent of the U.S. population living within 10 miles of a Walmart, and more than half of the U.S. population shopping in Walmart weekly, this provides the opportunity to redirect patient flow into Walmart locations and drive additional patient interactions by providing convenient access points.
Irvine-based REIT HCP (NYSE: HCP) and Brentwood-based owner-operator Brookdale Senior Living (NYSE: BKD) announced a series of transactions totaling more than $1 billion to restructure the relationship between the companies. HCP will acquire Brookdale’s 51 percent stake in a joint ownership venture in 12 entry-fee continuing care retirement communities (“CCRCs”) totaling 5,641 units for $510 million. HCP will also transfer operations of the 12 communities from Brookdale to Life Care Services, paying a $100 million termination fee to Brookdale in the process. In the second transaction, Brookdale will acquire 18 triple-net leased properties from HCP for $405 million. The sale represents a 7.4 percent yield based on trailing 12-month rent.
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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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