2018 Annual Health Care and Life Sciences Industry Spotlight
INSIGHT ARTICLE |
As 2018 wound to a close, the sheer longevity of the health care (HC) mergers and acquisitions (M&A) cycle was only reinforced by year-end tallies. The final quarter of 2018 saw $118 billion in total deal value across Europe and North America—a figure exceeding the prior six quarters and higher than all but a handful of other quarters this past decade. Such persistence largely owes its existence to the slow reshaping of the HC sector across the world, particularly in developed nations. Systemic factors such as demographic changes, rising costs, increased technology adoption, and regulatory changes all have combined to encourage both vertical and horizontal integration across multiple service and product lines. For example, as noted in the December 2018 edition of RSM’s The Real Economy, Medicaid expansion alone across the US can play a factor in the insured population, which offers a positive lift in demand for HC providers in key niches such as behavioral HC.
“We see no significant change this year as opposed to prior years,” says Ron Ellis, senior director with transaction advisory services at RSM US LLP (RSM). “There’s a similar sense of optimism around consolidation and rollups sponsored by private equity (PE) players. High multiples will still be a factor for all to consider, and consequently some sectors still have more favorable dealmaking considerations than others heading into 2019.”
No cycle can last at a robust level forever, even if the longevity of the HC M&A cycle would seem to bely that particular assertion. Despite the longstanding and still-potent factors of demographics, technology usage, and more, it is clear that in the short to medium term, more immediately pertinent factors could affect dealmaking. High transaction multiples will dissuade some deals from occurring, for one, while regulators may continue to encourage vertical integration as opposed to horizontal, thereby encouraging cross-sector buys rather than same-sector consolidation. Financial sponsors are still eager to gain exposure to HC investing by all accounts, but their interest is longer term and could be drawn out over a longer cycle than, say, the entirety of 2019. Moreover, the types of strategies employed will feed into the M&A cycle at future points, as Andy Jenkins, partner with transaction advisory services at RSM, points out. “The overall impact our clients will eventually make is in the aggregation and professionalization of specialty services in order to make them more integrable down the line,” says Jenkins. “Large systems are always looking to acquire specialties to integrate vertically, just at varying rates. As a result, PE groups are looking to capitalize on backing the specialty groups that would be attractive to some of these larger entities.” All that said, such integration and building takes time, which aligns with the minute if steady diminishing in M&A volume over the past several quarters.
Datagraphic available for download.