Categorized | Technology

Despite Industry Headwinds, Health Care M&A Forecast Stays Strong in 2018

Health care senior executives are entering the new year bullish in their mergers and acquisitions (MA) strategies, according to a survey conducted by Capital One Financial Corporation (NYSE: COF). 

More than 300 senior health care executives were surveyed by the McLean, Virginia-based financial holding firm Between Nov. 15 and Dec. 6, 2017.

Among those surveyed, exactly 50% identified MA as their primary growth strategy in 2018—a substantial jump compared to last year’s survey, in which 38% of senior executives cited MA as their top growth plan.

Eyes on new segments

Specifically, 21% of health care executives surveyed expect growth to be driven by new segments or lines of business, down 31% from 2017’s survey. Meanwhile, 20% of respondents predict growth will come from revitalizing their company’s existing offerings, according to Capital One. 

The survey also found that 99% of those surveyed predict that their company’s financials in the new year will match or exceed 2017 performance.

These recent figures are reflective of a similar survey Capital One released in mid September last year, specifically focusing on fourth-quarter MA activity in the seniors housing and skilled nursing industry.

In the 2017 survey, 89% of seniors housing and long-term care executives predicted that the pace of MA in the sector will maintain or exceed the current pace over the next year, with 43% expecting an increase in activity.

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The last year brought upon a bevy of MA activity in the skilled nursing and post-acute care field—between Sabra Health Care REIT, Inc.’s (Nasdaq: SBRA) sale of SNFs operated by Genesis Healthcare Inc. (NYSE: GEN), to Kindred Healthcare’s (NYSE: KND) recent acquisition by the trio of Humana Inc. (NYSE: HUM), TPG Capital, and Welsh, Carson, Anderson Stowe (WCAS).

On the home health front, Louisville, Kentucky-based Almost Family, Inc.’s (Nasdaq: AFAM) and Lafayette, Louisiana-based LHC Group, Inc’s (Nasdaq: LHCG) $2.4 billion merger is another prime example of MA moves being executed in the post-acute and senior care industry.

“All signs point to an increase in acquisitions in 2018, even following a strong year for MA in 2017,” Al Aria, senior managing director at Capital One Healthcare, said in a press release. “As liquidity in the market remains high, we’re seeing a continued demand for capital. Barring a significant crisis, we expect another year of strong investment activity in the health care industry.”

Industry headwinds

The majority of health care executives surveyed (62%) expect capital needs to remain steady in the coming year. Meanwhile, a third of respondents (33%) predict an increase in capital needs in 2018, a slight dip from 42%. Only 5% of respondents anticipate their capital needs to decline.

While interest in MA activity is strong in 2018, health care providers continue to face various industry headwinds, with regulations and reimbursement challenges posing the greatest threat in 2018 for 52% of respondents.

An additional 20% named modifications to the Affordable Care Act as their chief concern. The industry’s transition to value-based care was cited by only 13% of respondents.

“Health care leaders have both eyes focused on robust prospects for growth, and opportunities abound for further consolidation, joint ventures and strategic partnerships,” Aria said.

Written by Carlo Calma

Carlo enjoys running and taking indoor cycling and rowing classes. He tempers his active lifestyle by indulging in Chicago’s diverse food scene.

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