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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