Many companies have started to consider M&A as a powerful adaptation and value generation tool to stay the course during transformational times.
Bearing this in mind, the M&A Community is creating a series of articles to help businesses and executives take the first steps to dealmaking activity, supporting our global members to capture benefits beyond the expected synergies.
The pandemic outcomes transformed the world in ways that are still undiscovered; this statement is especially applicable to the main frontline player; the healthcare industry.
With this article, we want to provide you with a general overview of the healthcare sector and the main factors influencing its growth.
The healthcare M&A industry
There have been more than 790,000 M&A transactions since 2000. Their total value amounts to over $57 trillion. The leading sectors are industrials, technology, and finance with 13,9%, 12,9%, and 12,2%, respectively. Healthcare takes 5,5%. To be more specific:
- Healthcare equipment and supplies: over 15,000 transactions with a total value of $1,093 million.
- Healthcare providers and services: over 13,000 transactions with a total value of $773 billion.
In general, the healthcare industry is booming, and specialists expect to see even bigger growth. For example, the total transaction value was $250 billion in 2020. It increased to $436 billion in 2021, almost 56% more.
Top healthcare M&A trends impacting the sector
Here are the main growth drivers for healthcare M&A:
- Development of biopharmaceuticals. The global biopharmaceutical market size is predicted to reach $856 billion by 2030. At the same time, traditional chemical medicines are slowing down.
- Pharmaceutical e-commerce growth. Because of Covid-19 and social distancing, the use of online pharmacies increased by 17%. That’s why investments in the pharmaceutical e-commerce business increased.
- Population growth. The current world population is about 7,7 billion people. It’s expected to reach 9,7 billion by 2025. Therefore, healthcare companies will have to provide services for more and more people.
- Longer life expectancy. Globally, people live 6 years longer today than about 20 years ago. It leads to the growth in consumption of healthcare services which impacts the whole healthcare industry and M&A in it.
- Innovation. The impact of Covid-19 is huge. For example, new treatment technologies appear, like RNA technology for more efficient vaccines. Besides, there’s a fast adoption of virtual care. Healthcare is developing, attracting more M&A deals.
Healthcare M&A trends 2021
All you should know about M&A in healthcare in 2021 is stated below in numbers and facts:
- After a down 2020 year of pandemic, healthcare M&A rebounded in 2021. Its deal volume went up to 16%, and the total deal value increased by 44% to $440 billion.
- Pre-pandemic trends generally returned across five healthcare sectors: pharmaceuticals, medtech, payers, providers, and healthcare services.
- The total number of transactions declined, but the size of transactions surged in 2021.
- To justify high valuations, healthcare acquirers had to underwrite the revenue synergies that were becoming increasingly critical.
- Many healthcare organizations started looking for growth among companies in new markets abroad.
- The number of transactions aimed at adding capabilities climbed dramatically from 11% in 2017 to 18% in 2021.
- Transactions involving not-profit healthcare systems increased in 2021. They made up 87% of announced transactions, compared with 81% in 2020.
- Healthcare also witnessed increased deal activity in contract development and manufacturing organizations.
Top 3 healthcare deals in 2021
Here are some of the most prominent mergers and acquisitions in healthcare services that took place in 2021.
Oracle and Cerner
Deal value: $28.3 billion
Oracle is the world’s largest database management company. Cerner is a provider of digital information systems used within hospitals and health systems.
Larry Ellison, CTO at Oracle, said that two companies, working together, have the capacity to transform healthcare delivery by providing medical specialists with better information. Consequently, it enhances treatment decisions and results in a better patient experience.
Oracle’s primary task is to decrease the administrative workload burdening healthcare professionals. They provide companies with digital tools that enable access to information via a hands-free voice interface to secure cloud applications.
Microsoft and Nuance
Deal value: $19.7 billion
Nuance markets speech recognition and artificial intelligence software for healthcare providers. About 77% of hospitals and 10,000 healthcare organizations and pharma companies use its solutions worldwide.
Mark Benjamin, CEO of Nuance, believes that Microsoft will help them accelerate their innovation and deploy solutions more quickly and seamlessly. This will ultimately lead to solving the majority of the most pressing challenges healthcare sectors face.
Scott Guthrie, executive vice president at Microsoft, also acknowledges that this powerful union will help the health care industry offer more affordable, effective, and accessible services.
Bain Capital, Hellman & Friedman and Athenahealth
Deal value: $17 billion
Bain Capital and Hellman & Friedman are private equity firms. Athenahealth is a cloud-based electronic medical record provider.
Athenahealth’s solutions help clients improve clinical efficiency, optimize financial performance, and enhance patient care outcomes.
But according to the company’s CEO, Bob Segert, this acquisition is the next step in the evolution and transformation of the healthcare system. In his opinion, by adding new capabilities, they’ll create a successful ecosystem able to offer accessible, high-quality, and sustainable healthcare for their patients.
Healthcare M&A trends 2022
Here are key factors and trends that impact M&A dealmaking in 2022:
- Unlike 2021, which was the year of the rebound for health care in M&A, 2022 saw a dramatic downturn. Now deal volumes in health care private equity are declining.
- Health care private equity investors are facing a reduced supply of assets they can invest in. Besides, they have to deal with rising interest rates and general economic uncertainty.
- Other challenges are constrictions in the global supply chain, raised prices, and enormous shortages. They were caused by the pandemic and multiplied because of Russia’s invasion of Ukraine.
- The biggest deals of Q1’22 concentrate on acquiring digital capabilities to face industry and customer’s requirements shift. For example, digital care and cloud-based platforms were what investors showed the most interest in.
- Private equity funds are unenthusiastic toward hospitals and health systems in 2022. All because investors are discouraged by rising interest rates and labour costs. However, interest in physician practices and health care technology remains constant.
- The research shows more M&A deals in the health care industry should be expected in the US. The main reason is that the White House starts working on reducing health care costs. The Biden administration has already signed an order aimed to review merger guidelines for hospitals. It’ll ultimately result in more local M&A transactions.
Tips for successful healthcare M&A in 2022
M&A activity differs among healthcare segments and depends on the type of healthcare provider. Here’s where buyers should look for healthcare M&A deals in 2022:
- Behavioral health market. Behavioral health M&A has soared over the past decade. This was especially well-seen in 2021 when 149 behavioral health transactions took place. This is 34% more than it was in 2020, even despite the pandemic. Now, this is the most sought-after sector in health care services, especially for startups looking to enter the market.
- Home care market. Care beyond inpatient settings has been gaining more prominence lately. The U.S. Centers for Medicare & Medicaid Services increased payments for home health services in 2022. That’s why going after deals in the home care market might turn out to be a good idea.
- Long-term care market. In comparison with 2021, the deal value in the long-term care market increased by 2% to $19,6 billion in 2022. The main reason for that is the aging population. However, there are several challenges it faces. Among them are shortages of staff and skilled nursing facilities.
- Physician groups market. The physician medical group M&A market rocketed in the final quarter of 2021 and continues to be of particular interest in 2022. So far, 482 deals took place through May 15, with a total value of $5,7 billion.
- Governmental plans. President Biden plans to expand Medicare and Medicaid — the federal health insurance programs for the elderly and poor. The admonition will also continue to support The Affordable Care Act, generally known as Obamacare.
Let’s summarize the main facts to know about healthcare M&A deals:
- Healthcare currently takes 5,5% of the total number of global M&A transactions among all industries.
- Health systems are booming and will continue to grow. The total value of transactions was 56% higher in 2021 than it was in 2020.
- The main factors influencing the growth are Covid-19, longer life expectancy, population growth, innovation, and technology.
- Top 3 healthcare deals in 2021 are Oracle and Cerner, Microsoft and Nuance, Bain Capital, and Hellman & Friedman and Athenahealth.
- Top healthcare markets for M&A in 2022 include behavioral health, home care, long-term care, physician groups, and governmental plans.