Deal volumes broke records in 2018 across the health services sector, and deal activity is likely to remain high in 2019 thanks to a number of positive market factors, according to PwC’s latest health services deals insights.
2018 deals
While the number of deals was up in 2018, deal value fell from the previous year, according to PwC, though several megadeals still occurred. Total deal volume was 1,182, a 14.4 percent increase over 2017. Deal value dropped 31.4 percent, for a total of $121.5 billion for 2018. Though lower than the previous year, 2018 deal value was still above 2015 and 2016 levels.
Three megadeals during the year totaled $82.5 billion. These included Cigna’s $67 billion purchase of Express Scripts, KKR’s $9.9 billion acquisition of Envision Healthcare, and RCCH Healthcare Partners’ acquisition of LifePoint Health for $5.6 billion.
The positive short-term factors boosting deals, including capital availability and the potential for disruption from cross-industry alliances, will continue into 2019, PwC predicted.
However, long-term trends––which include headwinds and tailwinds such as regulatory uncertainty, reimbursement pressure and increased focus on the consumer––will also influence M&A. Deals are also becoming more expensive, which could potentially impact the pace of the transactions.
“Although 2019 has started with some economic and regulatory uncertainty, a number of signs suggest that interest in deals will continue this year,” Thad Kresho, U.S. health services deals leader at PwC, said in the report. “Corporate and private equity buyers both have access to significant levels of capital, and with double-digit volume growth in some sub-sectors, it's clear that deals are seen as an important strategy in an increasingly cost- and consumer-conscious ecosystem.”
Market factor details
Regulatory uncertainties may actually help drive deals in 2019, as health services companies seek to navigate income unpredictability through innovative partnerships, according to PwC. In particular, health services companies are dealing with the uncertain future of the Affordable Care Act after a recent ruling overturned the healthcare law in its entirety. The case is currently in the appeals process and on pause during the federal government shutdown.
The healthcare space is still dealing with Medicaid expansion as allowable under the ACA, as more states consider implementing the approach. Beyond the ACA, new tax reforms and inpatient volume pressures and high costs will continue to drive deal plans, including new or modified partnership models and divestitures of non-core assets.
Cross-industry and vertical integration-focused deals, including deals such as the $69 billion merger between CVS Health and Aetna, will likely continue as health services companies seek competitive advantages, PwC predicted.
Amy joined TriMed Media as a Senior Writer for HealthExec after covering home care for three years. When not writing about all things healthcare, she fulfills her lifelong dream of becoming a pirate by sailing in regattas and enjoying rum. Fun fact: she sailed 333 miles across Lake Michigan in the Chicago Yacht Club "Race to Mackinac."