Outlook strong for healthcare services deals, PwC finds
Volumes remain at nearly twice the levels seen from 2018 to 2020, despite a modest 4% decline in recent months.
Photo: Helen King/Getty Images
Coming off strong years for healthcare services deals in 2021 and 2022, volumes have remained resilient through May, despite multiple headwinds, including higher interest rates, increased antitrust regulatory review concerns, elevated valuations and general fears about the recession.
A new report from PricewaterhouseCoopers is optimistic about the outlook for health services deals for the remainder of the year. Both corporate and private equity players are holding onto large chunks of capital that need to be deployed, and sector dynamics are driving a need for health services companies to adapt and reinvent themselves.
Health services deal volumes in the 12 months ending in May declined a modest 4% from levels seen in 2022. But volumes remain at nearly twice the levels seen from 2018 to 2020.
However, the value of the deals declined by a more meaningful 15%, a continuation of the trend seen in 2022 in which a greater portion of deal volume is being driven by smaller value roll-up and add-on transactions, as opposed to transformational platform deals and megadeals.
WHAT'S THE IMPACT?
More than half of the announced deal value in the 12-month period studied was from megadeals – deals valued at $5 billion or greater.
There were six megadeals in the period, including CVS' $10.6 billion acquisition of Oak Street Health, a network of primary care centers for older adults on Medicare; Village MD's $8.9 billion acquisition of Summit Health-City MD, a provider of primary, specialty and urgent care services; and the $7.1 billion acquisition of Syneos Health, a multinational CRO, by a private investment consortium that includes Elliott Investment Management, Patient Square Capital and Veritas Capital.
According to PwC, these three deals collectively represent $26.6 billion of the total $38.2 billion of other services deal value over the 12-month period.
Other megadeals included CVS' acquisition of Signify Health for $8 billion, Mediclinic International's $7.4 billion acquisition by a consortium of investors and Chubb's $5.4 billion acquisition of Cigna's life, accident and supplemental benefits businesses.
THE LARGER TREND
The PwC report found that there were headwinds due to recent regulatory uncertainty, including Medicaid redeterminations.
According to the report, redetermination effects vary across states, and with their various regulatory approaches to disenrollment, but payers and benefit managers are continuing to seize this opportunity to capitalize on expected member growth in the exchange and employer-covered plans.
Reduced enrollment, or enrollment status ambiguity, may result in short-term downsides for providers more heavily reliant on Medicaid. This, PwC found, may drive increased distressed or semi-distressed investment options for opportunistic buyers.
Antitrust opposition to deals continues, albeit at more tepid levels, the report said. This is leading to medium-sized players finding themselves in more favorable positions during competitive processes as traditional strategic participants remain concerned with potential regulatory objections.
And as a result of the 2024 Medicare Advantage announcement, risk adjustment-based reimbursement declines will be phased in over three years, rather than being implemented at once. While partially alleviating the immediate fears around MA plans, PwC said the continued focus on risk adjustment normalization presents opportunities for managed care, benefit management and point solutions programs to differentiate themselves in driving lower costs of care – and in turn, volume share in the broader payer and related support services segment.
Twitter: @JELagasse
Email the writer: Jeff.Lagasse@himssmedia.com
