H2C INDUSTRY INSIGHTS: CAPITAL MARKETS

Trends, Mergers, and Industry News 

Week of July 25, 2022

Trends & Mergers: Healthcare

Healthcare System [& Other Healthcare] M&A Newly Announced Deals

Healthcare M&A Updates

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Source: Becker’s Hospital Review.

Hospital M&A volume continued its sluggish trend…

  • Just 11 transactions were announced in Q2 2022 compared to 22 in Q2 2021. This brings the YTD 2022 total to 19 versus 36 in YTD 2021.

  • Financial performance for many hospitals in the first half of 2022 has been challenging as expenses rose while hospitals struggled to increase revenue amid the pandemic and workforce shortages.

  • The repayment of CMS Advance Payments and a 20%+ drop in the public equity markets from their highs earlier in the year resulted in a decrease in cash at a time when hospitals are struggling to generate positive cash flows from operations.

  • The underlying market dynamics for hospitals are more difficult post-COVID than they were pre-COVID.

Recent notable transactions include…

  • Trinity Health acquired the remaining shares of one of Iowa's largest health systems, MercyOne. CommonSpirit will no longer jointly operate the regional health system with Trinity, which will acquire all of MercyOne’s facilities and assets as part of the deal.

  • Advocate Aurora Health and Atrium Health announced a plan to merge and transition to the new brand, Advocate Health. Federal regulators are reviewing the proposed merger, which is expected to receive attention despite the limited overlap in markets.

Amazon continues to invest in healthcare through its acquisition of One Medical

  • Amazon announced its first major acquisition under Andy Jassy’s tenure as C.E.O., spending $3.9 billion for One Medical.

  • One Medical is a publicly traded, membership-based primary-care practice offering virtual and brick-and-mortar services to commercially insured patients.

Trends & Mergers: Higher Education

Not-for-Profit Higher Education Key Trends

Higher Education Not-for-Profit Headlines

  • Student, Teacher & Staff Housing. Local conditions vary, but from Vermont to California, colleges are finding ways to make housing costs sustainable for employees and students.

- The Need. Surveys show that many students lack reliable housing options, which means they live in cars, couch-surf, reside temporarily with family or seek other short-term options, most of which result in unstable residential situations. Meanwhile, and despite surging demand, private developers are slated to deliver half the number of new student beds compared to a more typical year. The pandemic’s impact on permitting and funding, coupled with rising construction costs and supply chain delays, resulted in construction tapering off at many schools.

- CA. Nowhere is the need for student and workforce housing more pronounced than in CA, where median rent is nearly 150% that of the US average. More than a third of CA students reported some version of housing insecurity and more than half of community college student in Los Angeles. Even at the state’s flagship in Berkley, 16% reported housing insecurity, and 6% experienced a bout of homelessness. The state’s new budget plans to allocate $1.4Bn to 26 public campuses to build or expand dorms. The projects aim to augment student housing in the state by 7,300 beds at ultra-low rents. The deal calls for an additional $750MM for housing development grants next year and $1.8Bn in interest-free loans for student and workforce housing.

- VT. At Middlebury College, 20% of faculty and staff commute from New York State because the VT side of Lake Champlain is too expensive. The University purchased 35 acres and is working with a developer to construct 100 housing units, some of which will be available at below-market rates. The College plans to sell the land to the developer as part of the transaction.

  • Online Learning. University of Massachusetts’ UMass Global plans to triple in size, according to the University’s new Chancellor. UMass bought the online college last year from Chapman University.

  • Failed Merger. The 151-year-old San Francisco Art Institute will no longer function as a college and will not offer degrees after the collapse of its planned merger with the University of San Francisco.

  • Federal Coronavirus Aid. The U.S. Department of Education has awarded $198MM in coronavirus emergency relief grants to colleges from the American Rescue Plan. Announced July 13, it was the last batch of funding to go out under the Higher Education Emergency Relief Fund, or HEERF. CA, TX and NY were the top recipients, awarded $10Bn, $7Bn and $5Bn, respectively. The final allotment will be split between 244 colleges, mostly HBCU’s.

  • US News and World Report announced it was removing 10 colleges from its widely-publicized rankings, stating that institutions misreported key data. Among those removed was Columbia University. Recently a former Temple University business school dean was sentenced to 14 months in prison and a $250K fine for falsifying data submitted to US News as part of the rankings process.

About H2C Securities Inc. ("H2C")

H2C is a strategic advisory and investment banking firm committed to providing superior advice to healthcare organizations, higher education institutions, and related companies throughout the United States. H2C’s professionals have a long track record of success in healthcare and higher education mergers and acquisitions, capital markets, and real estate transactions, acting as lead advisors on hundreds of transactions representing billions of dollars in value.

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