Thursday, September 21, 2023

Healthcare M&A Activity Reaches 3-Year Low, But It Might Pick Up in the Back Half of ‘23 – MedCity News

M&A activity in the healthcare sector continued to decline in the second quarter of 2023, with the number of deals reaching its lowest point in three years, according to a new report from KPMG. There were 245 healthcare M&A deals in Q2 of this year, which is 7% lower than it was in the second quarter of last year and 41% lower than the same period in 2021. 

However, the report predicted that M&A activity could increase in the second half of this year due to healthcare companies’ continually shrinking valuations and divestitures of their non-core assets. In other words, lower valuations will make the deal attractive to buyers who shied away from sky-high valuations in recent years in some parts of the healthcare sector.

M&A deals may also increase in the first half of 2024 if the Federal Reserve decides to cut interest rates, the report said.

Even though deal volume was down in Q2 of this year, there were still some megadeals. The biggest was CVS Health’s acquisition of Oak Street Health, which was valued at $10.6 billion. The deal was made to strengthen CVS’ primary care offerings — it gives the company 600 new primary care providers and 169 clinics, as well as Oak Street’s technology platform for delivering value-based care.

Two other examples of megadeals from the second quarter were Optum’s $3.3 billion acquisition of Amedisys, as well as TPG and AmerisourceBergen’s $2.1 billion purchase of OneOncology.

As KPMG’s analysts look toward the future, they believe the trend of clinical services leaving the four walls of a hospital will continue to have a major influence on healthcare dealmaking. The robustness of these M&A opportunities differs from region to region, depending on how many medical procedures are shifting from the hospital to ambulatory surgery centers (ASCs) or office-care settings in a particular area.

The report cited Austin and Las Vegas as examples of mature markets where a significant number of procedures now take place in ASCs and doctor’s offices. In areas like these, physician groups could be an attractive target for buyers. Companies ripe for acquisition will likely have ambulatory assets and high patient volumes, as these attributes position them well to grow the number of services they perform and enter into value-based care arrangements, the analysts wrote.

Buyers — whether they are large retailers, health systems or private equity groups— might be especially interested in physician groups with specialties in primary care, cardiology, women’s health and nephrology because these areas have significant value-based care potential, according to the report. 

As for regions where procedures are still mainly performed in hospital settings, such as Cleveland and New Orleans, investors have a big opportunity to shift services to other care sites. When more services move outside the hospital, independent physician groups can receive higher fees and earn facility revenue if they own ambulatory assets, the report pointed out. 

Investing in these immature markets is not without risk, though. Provider concentration might be an obstacle, potentially amplifying the difficulty of shifting services due to the disruption of referral connections with health systems.

The analysts recommended that buyers in these markets pursue assets in fee-for-service specialties with high procedural volumes, such as ophthalmology, orthopedics and urology. They also suggested that investors partner with payers in their efforts to shift services outside the hospital, as payers may be able to help provide the technology and equipment that physician groups need to perform procedures and diagnostics in office settings.

Photo: AndreyPopov, Getty Images

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