H2C INDUSTRY INSIGHTS: CAPITAL MARKETS
Trends, Mergers, and Industry News
Week of March 27, 2023
Trends & Mergers: Healthcare
Healthcare System M&A Newly Announced Deals
M&A Updates and Sector Headlines
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Special Report. The Wall Street Journal reported that Congress is initiating an investigation into Pharmacy Benefit Managers (PBMs), which are companies that play a middleman role between pharmaceutical companies and drug purchasers.
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A PBM’s goal is to lower drug costs by negotiating rebates with pharmaceutical companies. In theory, the savings generated by the rebate are then passed on to health insurance companies. In turn, the insurance companies pass on savings to individuals via reduced premiums.
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However, critics of PBMs argue that PBMs’ demands for increased rebates have forced pharmaceutical companies to raise prices to maintain their bottom line, and that the co-pays and prices that individuals pay for drugs are not necessarily reduced by the rebates negotiated by the PBMs.
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Push for Increased M&A Regulation in California. A coalition of over 30 organizations called “Protect California Patients” are supporting a piece of California legislation called “Assembly Bill 1091”, which would give the state attorney general increased oversight on mergers worth more than $15 million. The coalition is funding billboard advertisements along California roadways.
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Independent Hospitals Continue to Seek Options.
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Multiple proposals were submitted to Singing River Health System (MS), with Franciscan Missionaries of Our Lady Health System (FMOLHS) and Singing River announcing that it would seek to finalize an acquisition deal in the Fall of 2023. The acquisition is part of Louisiana-based FMOLHS’s continued expansion into Jackson County, Mississippi.
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Singing River’s buy-side advisor, Raymond James, estimated a sale price of $158-238 million, implying a revenue multiple of 0.3x-0.5x and an operating EBITDA multiple of 5.3x-7.9x (1).
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Washington Health System (one of three independent hospitals in the Pittsburgh area) is in merger negotiations with larger health systems. Highmark Health, who owns Canonsburg Hospital six miles away from WHS, is expected to be a top candidate.
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St. Margaret’s Health in Peru, Illinois is in talks with a larger health system regarding a potential sale. The 44-bed hospital closed earlier in February when it was unable to renew its contract with its emergency room physicians group.
(1) Based on Singing River’s fiscal year 2021 audit
Sources: The Wall Street Journal, Becker’s Hospital Review
Trends & Mergers: Higher Education
Not-for-Profit Higher Education Trend: The Spread in Enrollment between Flagship and Regional Institutions is Widening
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Overview. A new report from the National Student Clearinghouse Research Center indicates the number of students who earned undergraduate degrees fell by 1.6 percent last year, reversing nearly a decade of steady growth.
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The Numbers. An “unprecedented” one-year loss of 50,700 first-time degree earners drove the decline, according to the report.
- Associate degree earners experienced the steepest decline at 7.6 percent.
- Bachelor’s degree earners fell by 2.4 percent, the first drop in a decade.
– Students earning a bachelor’s degree after having earned an associate degree fell by 2.5 percent, resulting in a 0.8 percent decline in overall non-first-time graduates, the first drop in a decade.
– Decline of 4.1 percent among first-time graduates 25 years and older.
– Decline of 1.0 percent among graduates 24 years and younger.
– First-time certificate earners rose by 9 percent.
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Drivers. A variety of trends have contributed to the decline including shifting demographics, continued enrollment declines, and growing public skepticism over the economic value of a degree.
Higher Ed Not-for-Profit Headlines
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COVID Refund. The U.S. Court of Appeals for the Second Circuit resuscitated a class action lawsuit brought against New York University (“NYU”) seeking reimbursement of tuition paid by students when the university transitioned to online classes during the COVID-19 pandemic.
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FAFSA Delay. The U.S. Department of Education has delayed the release of its updated FAFSA application. The department’s Office of Federal Student Aid released a road map outlining key dates and milestones over the next several months, ending with the launch of the new application in December. The new application is part of a broader overhaul of the student financial system passed by Congress in 2020. That overhaul includes simplifying the underlying formula used to determine aid eligibility.
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OPMs. Pearson announced it will sell its online education services, including its OPM company, to a private equity firm. In addition to losing one of its biggest clients, Arizona State University, Pearson also lost 1,000 students in the first half of 2022 compared to the prior year. Pearson’s struggles reflect similar problems with other OPMs, as they face declines in revenue and enrollment, along with increased regulatory scrutiny.
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Student Loan Forgiveness. House and Senate Republicans are planning to introduce a resolution to overturn President Biden’s $400 billion student loan forgiveness plan after the Government Accountability Office determined that the plan meets the definition of a rule under the Congressional Review Act.
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Cyber Attack. A recent ‘cybersecurity incident’ caused Lansing Community College to suspend classes, events and other activities on campus. College officials worked with the FBI, their cyber insurance response team, and the state police Michigan Cyber Command Center to investigate and resolve the issue.
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Closure. Finlandia University’s Board of Trustees unanimously voted to dissolve the institution, located on the Upper Peninsula of Michigan. The University will not enroll any students in the 2023-24 academic year after struggling with a decline in the number of high school graduates, falling interest in attending college, and an “unbearable debt load”.
Key Rate Updates
Source: U.S. Department of the Treasury, Bond Buyer, Investment Company Institute, Bloomberg and Refinitiv/TM3 Data as of March 24, 2023.
(1) Weekly SIFMA and SIFMA/1M-LIBOR as of March 22, 2023
The information presented herein was obtained from resources believed to be reliable and accurate, but H2C Securities Inc. does not guarantee the accuracy or completeness or assume a responsibility for any loss which may result from the action by any person upon such information. Such information is subject to change without notice and is not intended as a recommendation, offer, or solicitation with the respect to the purchase or sale of any security.
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H2C Capital Markets Team