US Health Services deals insights: Q3 2019

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Q3 2019 saw billion–dollar deals and a slight decline in multiples

For the ninth quarter in a row, deal volume exceeded 250 deals, with eight priced $1 billion or more.

Long-term deal drivers remain largely unchanged. Overall trading multiples remain elevated relative to recent history but decreased slightly versus prior-year LTM.

According to our analysis of Dealogic data, the drought in IPOs since 2016 continued in Q3 2019.

“We think the appetite for Health Services deals will be consistent through the end of 2019, even amidst macroeconomic uncertainty, due to their strategic value and capital availability.”

Nick Donkar, US Health Services Deals Leader

Trends and highlights

Total deal value increased by double digits over prior year and prior quarter, even in the absence of a megadeal (defined as exceeding $5 billion). One reason was there were twice as many $1 billion-plus deals as usual.

Total deal volumes declined versus prior year and prior quarter, but remained elevated versus the quarterly average over 2014-2018 (252).

Although multiples declined slightly over prior-year LTM due to decreases in most sub-sectors, Q3 2019 marked the tenth consecutive quarter of multiples greater than 13.0x. SNFs/ALFs/LTACHs* was the one sub-sector that saw a notable increase versus prior year LTM (4.3x).

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Highlights of deal activity


Health Services sub–sector analysis

In volume terms, sub-sectors’ ranks were similar to past quarters. As usual, Long-Term Care saw the most deals per quarter (100, or 38% of the quarter’s deal volume), and Physician Medical Groups (17%) and Other Services (14%) rounded out the top three. In value terms, Long-Term Care was the largest, accounting for 29% of the quarter’s total, followed by Hospitals (25%) and Other Services (16%).

Sub-sector growth dynamics were mixed in Q3 2019. Most sub-sectors saw volume declines, with the exception of Hospitals and Managed care (24% and 14% growth over prior year, respectively). Despite seeing volume growth, Hospitals was one of the few sub-sectors that declined in deal value year-over-year (the others being Behavioral care and Other Services).


Health Services deals outlook

Health services deals activity appears relatively unchanged in the face of macroeconomic concerns, as companies grapple with long-standing trends. These trends are likely to continue to influence deals through the remainder of 2019.

For example, deals may be one strategy companies use to navigate income unpredictability related to reimbursement pressure and states’ differing approaches to implementing Affordable Care Act provisions, while the law stands.

Private equity firms continue to have high capital availability, targeting a range of physician medical group sub-specialties and technologies. Firms also continue to appear willing to pursue deals in concert with others, e.g., TowerBrook Capital Partners and Ascension’s announced acquisition of Hospice Compassus.

Horizontal integration (e.g., health system mergers) is likely to continue due to its potential to strengthen service lines or mitigate volume pressure and high costs.

Additional vertical integration-focused deals could be announced, given factors such as the official sign-off on the CVS-Aetna deal and technology companies’ continued interest in the sector.

Consumer- and patient-centricity remain key elements of Health services companies’ strategies, particularly given increased focus on social determinants of health and proposed rules calling for greater patient data access and interoperability. Companies are likely to pursue deals and alliances that add assets that further these goals.

About the data

Deal volume and value: We defined US M&A activity as mergers, acquisitions, shareholder spin–offs, capital infusions, consolidations and restructurings where acquisition targets are primarily US–based companies acquired by US or foreign acquirers. Transactions are based on announcement date, excluding repurchases, rumors, withdrawals and deals seeking buyers. We consider deals to be mergers or acquisitions when there’s a change of control or the makeup of the controlling interest changes. In the instance of an acquisition, one company takes effective control over another company or product. In a merger situation, two boards are combined and/or monies are combined. An affiliation or collaboration is neither considered a merger nor an acquisition. The merger and acquisition data contained in various charts and tables in this report has been included only with the permission of the publisher of Deal Search Online and HealthCareMandA.com. All rights reserved.

Multiples: Data on EV/EBITDA multiples was sourced from S&P Capital IQ (a division of McGraw–Hill Financial) and includes publicly–traded companies in the following sub–sectors: Acute Care, Ambulatory Care/Rehab/Dental, Home Health/Hospice, Labs/Imaging, Managed Care, Outsourcing, SNFs/ALFs/LTACHs. Information provided by or through third parties is provided “as is”, without any representations or warranties by PwC or such third party. PwC and such third party disclaims any contractual or other duty, responsibility or liability to Client and any person or entity that receives such Information.

IPOs: IPO information was sourced from Dealogic Equity Capital Markets Analytics, for the following sectors: Healthcare–Practice Management, Hospitals/Clinics, Healthcare–Miscellaneous Services, Outpatient Care/Home Care, Insurance–Multi–line.

Contact us

Nick Donkar

Partner, US and West Region Health Services Deals Leader, PwC US

Kristan Chesnut

Deals Partner, PwC US

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