Research Preview - Analysis of Mergers and Acquisitions Trends in the United States Healthcare Provider Industry


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Merger and acquisition (M&A) activity is gaining pace in the U.S. healthcare provider industry as companies attempt to recover from the reduced profitability and operating margins caused by the economic downturn. The industry sees M&A as a key means to reverse the trend of declining profits as they boost economies of scale and provide access to more capital, which is required to comply with the various regulatory standards.

New analysis from Frost & Sullivan’s Analysis of Mergers and Acquisitions Trends in the United States Healthcare Provider Industry reveals the volume of M&A deals has increased from 199 in 2007 to 260 in 2013. In particular, the post-acute care, surgical and emergency center segments are expected to drive M&A activity in the U.S. healthcare provider industry.

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Research Preview - Analysis of Mergers and Acquisitions Trends in the United States Healthcare Provider Industry

  1. 1. US Healthcare Provider M&A Activity Fueled by Low Margins and High Compliance Costs Research PREVIEW for the Analysis of Mergers and Acquisitions Trends in the United States Healthcare Provider Industry
  2. 2. Objectives of the Study Key study objectives include: Source: Frost & Sullivan To analyze the M&A trends in the US healthcare provider industry To identify the key M&A trends in the industry based on deals across sectors and the nature of buyers To conduct a financial analysis of the deals with respect to valuation multiples To identify, compare, and assess sectors that are current and potential hubs for M&A activity To arrive at strategic conclusions on the basis of the key trends observed
  3. 3. 3 The Full Analysis Features the Following Content Contents Slide Number Executive Summary 5 Introduction 7 The Key Rationale for M&A 12 Key M&A Statistics 18 Type of Integration 24 Type of Target 28 Key M&A Metrics 31 Transaction Details 35 Conclusion 47 The Frost & Sullivan Story 50
  4. 4. 199 171 192 310 398 418 260 0 50 100 150 200 250 300 350 400 450 2007 2008 2009 2010 2011 2012 2013 DealVolume Year M&A Deal Trends by Volume The healthcare provider industry witnessed a marked decrease in the number of M&A deals between 2007 and 2008. The deals plummeted around 15.0% between 2007 and 2008. This outcome is primarily due to economic recession, which began in 2008. However, when the economy started to show signs of recovery in 2010, the deal-making activities accelerated. The deals increased by 58.5% between 2009 and 2010, which is the maximum year-on-year increase that had happened in the years included in this study. The legislation of ACA in 2010 harbingered the increased deal activity and the surge in deal volume continued until 2012. The deal volume increased from 398 to 418 in 2012. With around 260 closed deals, along with 153 deals announced, consolidation in the healthcare provider industry is expected to continue in 2013. Healthcare Provider Industry: Volume of M&A Deals, US, 2007–2013 Source: Capital IQ; Frost & Sullivan
  5. 5. 62.0 62.8 73.5 74.8 67.7 74.4 78.8 12.0 16.7 14.5 7.9 15.9 10.9 10.2 14.1 20.5 10.8 12.6 12.9 10.9 9.3 5.4 1.2 2.0 2.0 0.9 6.5 2.6 1.5 1.7 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 2007 2008 2009 2010 2011 2012 2013 DealVolume(%) Year < $50.0 M $50.0M-$100.0M $100.0M-$500.0M $500.0M-$1.00B > $1.00B Percent Volume of M&A Deals by Deal Value Range Analysis Healthcare Provider Industry: Percent Volume of M&A Deals by Deal Value Range, US, 2007–2013 Source: Capital IQ; Frost & Sullivan The analysis of deals based on the transaction range clearly indicates that, after the advent of the financial crisis, since 2008 the share of low-value deals (<$50.0M) has increased as a percentage of total deals during the entire study period. This trend is accompanied by a drastic reduction in the high-value deals (> $500.0 M) after the onset of the recession in 2007. The analysis of data through November 14, 2013 revealed that only 2 deals with transaction values of more than $500.0 million occurred. This is drastic fall in comparison with eleven deals that happened in 2007. The outlook of credit ratings for not-for-profit hospitals looked bleak. This makes them less credit worthy, thereby making it difficult for them to access capital. This, along with their declining margins, makes them vulnerable to acquisitions. However, the acquirers, especially the private equity investors, will experience an increase in the cost of capital to fund the transaction. A confluence of these factors has created a trend of increasing low-value deals.
  6. 6. Interested in Full Access? Connect With Us Jennifer Carson North America Corporate Communications (210) 247-2450 Research Authors Dr. E. Saneesh Research Analyst Business & Financial Services S. Shrikanth Industry Analyst Business & Financial Services Vidya S Nath Research Director Business & Financial Services Facebook LinkedIn Group SlideShare Twitter
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