PwC's Deals Sector Leader John Potter and other partners discuss the deals outlook for the rest of 2021.
Health services deal volumes and values have more than recovered from their early 2020 slump. The fourth quarter of 2020 saw the highest quarterly deal volume ever (352) – then the first quarter of 2021 beat it by 21%, reaching 426.
Deals appetite has persisted despite high multiples — the sector-wide mean enterprise value to EBITDA multiple for the 12 months through May 15 reached 16.1x.
In recent months, the industry has seen six megadeals valued at $5 billion or more, traditional IPOs and special purpose acquisition company-backed IPOs.
Deals in this sector are being driven by forces including capital availability, regulatory shifts, evolving competitive dynamics, promising technologies and commitments to patient-centricity.
In the 12 months through May 15 (LTM), deal volumes and values exceeded 2018, 2019 and 2020 levels. Gains versus full-year 2020 were broad-based, with most subsectors seeing double-digit growth in deal volumes. Some subsectors experienced triple-digit growth in deal values.
Deal volume in long-term care fell slightly during this period, yet the subsector remains the most frequent target for deals. We anticipate this trend will continue.
Compared with 2014-2020 annual average volumes, two subsectors saw notable increases: physician groups (likely related to market fragmentation and pandemic-driven financial pressure), and behavioral care (likely related to long-term and pandemic-driven demand).
Looking ahead, we anticipate ongoing interest in the public markets, given recent activity. For years, there were no pure health services IPOs, but 2021 has already seen four. This count excludes SPAC-backed IPOs, of which there have been at least 10 in the 12 months through May 15. We classify two of these as megadeals.
In the same period, there have been four other megadeals:
By comparison, 2019 and 2020 saw just one megadeal each.
Private equity and corporate capital is plentiful and driving demand for assets. Barring surprises — such as a major domestic worsening of the pandemic — we anticipate deal interest at similar levels through year’s end and beyond, despite a high-multiple environment.
EV/EBITDA multiples have dropped slightly in just three subsectors: managed care; labs, imaging and pharmacy; and ambulatory care, rehabilitation and dental. At 26.2x, home health and hospice’s multiple is still the highest in the sector, by far.
“Pandemic progress means dealmakers are starting to refocus on pursuing competitive advantage. We see investors adding capabilities and rethinking ecosystems, with a laser focus on value and patient-centricity.”
HealthCareMandA.com: The merger and acquisition data contained in various charts and tables in this report has been included only with permission of the publisher of HealthCareMandA.com. All rights reserved.
S&P Capital IQ: 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 parties disclaim any contractual or other duty, responsibility or liability to client and any person or entity that receives such information.
Partner, PwC US
Deals Partner, PwC US