Health Services, Hospitals, Payers

Report: Quarterly health services deal volume hits record-high

The volume of deals in the health services sector hit a quarterly record-high of 426 deals in Q1 2021, up 21% from 352 deals in the fourth quarter of 2020. Regulatory shifts, changes in care delivery and the rise of non-traditional healthcare companies are all driving the trend.

Health services deal volume is soaring, with the first quarter of 2021 seeing a record high of 426 deals, according to a new report by PricewaterhouseCoopers.

Released Tuesday, the report shows that deal volume in Q1 2021 jumped 21% from the fourth quarter of 2020, which saw 352 deals. This was previously the highest quarterly deal volume ever.

Specifically, deal volumes increased by 59% in the rehabilitation sub-sector compared to 2020, and by 55% in the managed care sub-sector. Conversely, deal volumes were down in the hospitals and long-term care sub-sectors — by 9% and 6% respectively.

Along with deal volume, deal value has increased. In the 12 months through May 15, the healthcare industry saw six megadeals, each of which was valued at more than $5 billion. These include Humana’s acquisition of the remaining 60% stake in Kindred at Home and Walgreens Boots Alliances’ selling its Alliance Healthcare business to AmerisourceBergen for $6.5 billion.

Further, there have been two $10 billion-plus deals targeting contract research organizations in the year ended May 15, the report states.

By comparison, 2019 and 2020 saw just one megadeal each per PwC’s midyear projections.

One of the key factors driving health services deals is regulatory shifts. These include the pausing of Trump administration-era plans and a renewed focus on antitrust concerns, which is leading stakeholders to diversify revenue streams, add scale or consider alternate collaboration models, according to the report.

Further, the entry of non-traditional companies into healthcare, like Amazon and Walmart, and the shifts in care delivery, such as the rising popularity of virtual and home healthcare, are encouraging stakeholders to enter into new care models or collaborations.

“Pandemic progress means dealmakers are starting to refocus on pursuing competitive advantage,” said Nick Donkar, U.S. health services deals leader at PwC, in the report. “We see investors adding capabilities and rethinking ecosystems, with a laser focus on value and patient-centricity.”

Interest in health services deals will continue to rise, despite high multiples, the report states. The sector-wide mean enterprise value to EBITDA multiple for the 12 months ended May 15 reached 16.1x.

Home health and hospice’s multiple is the highest in the sector by far, at 26.2x. But multiples have dropped slightly in three sub-sectors: managed care; labs, imaging and pharmacy; and ambulatory care, rehabilitation and dental.

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