For a variety of reasons, the acquisition of medical practices by hospitals has become more attractive in recent years. The volume of acquisitions is increasing steadily and therefore physicians and their advisors need to understand the valuation process which drives the purchase price. Almost all hospitals hire a valuation firm that “represents” their interests. We believe that in order to level the playing field, each party should retain their own valuation experts.
The long-awaited opinion issued in late June by the U.S. Supreme Court clarified the constitutionality of the Patient Protection and Affordable Care Act of 2010 (“PPACA”). The Court ruled that the requirement that every American carry health insurance is a tax and as a result, is constitutional. The ruling permits the federal government to pursue a broad expansion of the Medicaid health program for the poor.
The healthcare industry is faced with slow revenue growth, uncertainties resulting from healthcare reform and the economy in general. As a result, hospitals and healthcare providers are looking to cut expenses and increase efficiencies or to consolidate in the hopes of streamlining operations and gaining pull with the industry payors. As strategic mergers and acquisitions in the sector continue, private equity firms are positioning to capitalize on this industry in transition. BDO, the national accounting and consulting firm, recently released a study, which showed 21 percent of private equity professionals (the second largest percentage of all respondents) see the greatest opportunities for new investments, during the next 12 months, in the healthcare and biotech industries.
As we await the U.S. Supreme Court review of President Obama’s healthcare overhaul and find ourselves deep in the century-long American debate over healthcare, three issues seem clear for this industry in transition. First, regardless of the Supreme Court rulings, coverage as we have historically known it will expand and more Americans will be able to access that coverage. The issue is how much will this market grow. Second, cost and the containment of those costs must be streamlined across the healthcare value chain. And finally, businesses involved in all areas of the healthcare industry will continue to consolidate in an effort to lower cost and increase coverage or market share. Whatever one’s political views or vision of the future, these issues are the core strategic drivers of change and are at the center of driving mergers and acquisition in the U.S. healthcare industry. Obviously, the Supreme Court decision matters. Whatever the decision, these issues will continue to drive the transformation that has been set in place and will continue to fuel M&A.
Summertime typically signals a slow down for mergers and acquisition activity, especially for technology-based businesses. The Nasdaq’s lackluster performance during summer indicates investors tend to ignore this sector in anticipation of the latest technology gadget or new game-changing systems that normally are unveiled as autumn approaches. However, recent M&A activity impacting information technology (IT) companies servicing the healthcare industry has been far from stagnant.
Lately the “L” seems to be missing from LBO’s (leverage buy-outs) as a result of the lack of leverage over the past few years. However the slower mergers & acquisitions activity in the healthcare market first seen in late 2008 has recently improved, undoubtedly partially driven by the renewed health of senior debt lending to support transactions.
Healthcare remains one of the nation’s most vibrant and vigorous sectors, creating some excellent opportunities for mergers and acquisition (M&A) activities.
Florida’s commitment to forming a biotechnology cluster within the state will have significant impact on both the healthcare industry and Florida’s overall economy during the next 10 to 15 years. During the last four years, the state has earmarked nearly $700 million in incentive plans to help attract two of the largest biotechnology research institutes in the world, the Scripps Research Institute and the Burnham Institute.
Prevention versus treatment. One might assume investment dollars flow freely into preventative care based on the overall media coverage. However, having just returned from the largest bio-healthcare conference of the year, I can tell you that investing in treatment (pharmaceuticals, medical devices, health insurance, etc.) is still king and has no near-term threat of being overthrown. Approximately four percent of the $2 trillion spent annually on healthcare is earmarked for prevention. So it is easy to understand the investor focus on treatment.
The current push for business and government to shift healthcare responsibility and costs to individual consumers, often called Consumer Directed Healthcare, is laying the groundwork for the creation of a wide array of new kinds of businesses, services and products, with many health care providers turning to mergers and acquisitions as the fastest way to meet the new demand.
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