Q3 2018 Health Care and Life Sciences Industry Spotlight
INSIGHT ARTICLE |
As the health care landscape continues to experience slow-paced but significant change, so too have M&A trends evolved. Key segments are still seeing significant consolidation, such as clinics and outpatient services, or retail health segments such as dermatology. Other segments are dominated by megamergers as giant companies grapple with stubbornly rising prices by uniting additional services under one corporate umbrella, thereby courting additional patient flow. An inexorable march toward larger chains in many cases seems inevitable, primarily for health care services; although the ongoing disruption of models by more efficient application of technology for data flow continuity and security will still require substantial investment.
“Our clients, spanning both strategic and financial sponsors, are still sitting on a lot of cash,” says Ron Ellis, senior director with transaction advisory services at RSM US LLP (RSM). “They are chasing deals and want to get them done this year.” On the private equity side in particular, avid buyers are propelling overall M&A volume forward. “And as may be surmised when there’s an abundance of cash and plenty of buyers, the biggest challenge for fund managers is finding the right asset and obtaining exclusivity in the bidding process,” says Andy Jenkins, partner with transaction advisory services at RSM. There are many factors for fund managers poised for longer holding times in particular, to consider, from pen risk of fluctuating related regulations to innovation and implementation of health care information technology. In short, acquirers still have plenty of work cut out for them, especially in the current landscape.
Supply and demand dynamics continue to yield robust dealmaking volume within health care, particularly with aggregate deal values skewed by megatransactions. Forecasts pertaining to volume are complicated given the level of dry powder available for private equity funds, not to mention the level of cash corporate players have on hand. Accordingly, buyers will continue to remain active, keeping valuations high and sustaining the sellers’ market. Consolidation will only continue; megamergers such as the CVS-Aetna acquisition are signaling not the end of that trend, but rather the latest examples. Interest rate rises will affect some but not much of private equity fund managers’ incentives, as many are already baking in the potential ramifications of rate hikes, and that timing is fairly protracted. Sellers will continue to press eagerly to offload the most worthwhile assets given current prices—but those same prices will prompt them also to prepare even more thoroughly to expedite buyers’ screening. Last, but not least, a slowly unrolling yet inevitable wave of innovation in pharmaceuticals will continue to effect changes in prescription pricing and associated payments, as biosimilars contribute to lowering prices and as novel therapies, particularly in immunotherapies, enter the realm of viability.
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