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Healthcare M&A Activity Highest Since 2007, Report Finds

November 18, 2013
by Rajiv Leventhal
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Healthcare mergers and acquisitions (M&A) activity totaled $143.3 billion in 2012, with the highest volume of transactions reported in the industry since 2007, according to a new report from Hammond Hanlon Camp (H2C), a N.Y.-based strategic advisory and investment banking firm focused on the healthcare sector.

While the total transaction value in 2012 was 38 percent lower than in 2011, the number of transactions increased by 6 percent, to 1,063 deals, with the most growth occurring in the service sector. A favorable capital markets environment along with substantial private equity looking for investment opportunities in healthcare fueled growth in transaction volume, according to the report.

A significant theme across the industry was the drive toward increased size and diversification in order to achieve economies of scale and provide a broader array of services. Recent regulation and legislation have encouraged fundamental changes in the business models of healthcare service organizations, which are reorganizing to accommodate a shift from activity-based to risk-based reimbursement.

The report found several other trends that are influencing healthcare M&A activity. Organizations are shifting toward more creative structures and relationships, and acquiring organizations are demonstrating renewed interest in behavioral health and post-acute sectors. Vertical integration continues through cross-segment transactions as providers increase focus on clinical integration and diversification.

Hospital-to-hospital transactions will continue at a robust pace in 2014. However, those transactions will be more complex and occur at a somewhat slower pace, H2C forecasts.  More unique and complicated transactions, in place of the traditional purchase/sale structure, are likely as companies across the service sector consider how best to mitigate risk and position themselves as the “preferred option” for accountable care organizations (ACOs) and healthcare exchanges.

The report measured M&A activity by specific sector within the healthcare industry. These sectors include: hospitals and health systems; physician practice management; managed care;  long-term care; behavioral care; home health/hospice/DME (durable medical equipment);  laboratory and real estate.

Merger and acquisition activity was robust in 2012, continued in 2013 and the outlook for 2014 is also strong,” William Hanlon III, principal at H2C, said in a statement. “A wave of consolidation has occurred across the industry as organizations position themselves for an uncertain future. Further, some unusual relationships emerged during the year that may indicate a trend of mega-mergers, especially in the hospital and managed care sectors. We expect merger and acquisition activity to continue at a steady pace through the rest of the year and into 2014.”

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