As we await the U.S. Supreme Court review of President Obama’s healthcare overhaul and find ourselves deep in the century-long American debate over healthcare, three issues seem clear for this industry in transition. First, regardless of the Supreme Court rulings, coverage as we have historically known it will expand and more Americans will be able to access that coverage. The issue is how much will this market grow. Second, cost and the containment of those costs must be streamlined across the healthcare value chain. And finally, businesses involved in all areas of the healthcare industry will continue to consolidate in an effort to lower cost and increase coverage or market share. Whatever one’s political views or vision of the future, these issues are the core strategic drivers of change and are at the center of driving mergers and acquisition in the U.S. healthcare industry. Obviously, the Supreme Court decision matters. Whatever the decision, these issues will continue to drive the transformation that has been set in place and will continue to fuel M&A.
A review of mergers and acquisition activity within the healthcare industry over the past 3 years confirms this heightened interest and move to consolidation. The total dollar value of FY2011 transactions, as reported by Capital IQ, was $225B. This matches the annual levels measured in dollars seen since interests picked up in FY2009 coinciding with the passage of reform. A closer look at disclosed values of FY2011 deals reveals that the larger deals, valued over $250MM continued to represent approximately the same percentage of all transactions as measured in dollars (86%) and numbers of deals (5%) in place since 2009. Of significance, however, FY2011 saw the continuation of an increase in the number of transactions reaching 2,767; up from the prior two years volume of 1,866 (FY2009) and 2,463 (FY2010). So, while the number of larger deals remained constant, this increase in volume confirms the continued interests in this industry and its move to the consolidation of smaller, mid-market businesses.
- Increases in R&D and IT investment
- Digitalization of patient records lowers labor cost and increases efficiency
- IT required by FY2014 mandated state government changes
- Services and products that result in SG&A savings, perserving margins
- Wellness and disease management targeting cost containment
- Americans spend $2 trillion annually on health care, more than another country in the world
- Expectation of major industry shifts driven by Federal reform
- 30 million more Americans will have access to health care
- Margins will be pressured as exchange systems create competitive bidding
- Providers are no longer merely local as hospitals, assisted living, nursing & rehab centers merge
- Vertical Integration
- Consolidation between providers and insurers to capture margins along the entire value chain
- Insurance companies seek lower utilization to lower claims by owning service providers
- Dental, vision, hearing assisted living and other consumer driven services in favor
- Less regulatory pressure and higher margins
- Large corporate providers are very active
- Growth driven by aging population
Now may well be the time business owners in the healthcare market should execute on a liquidity strategy. If a business owner believes that the sale of all or even a portion of their business is something they would like to consider in the next couple years, 2012 maybe the ideal time to move.