According to the PwC report, "Barring surprises — such as a major domestic worsening of the pandemic — we anticipate deal interest at similar levels through year's end and beyond, despite a high-multiple environment."
Both the volume and value of health services deals have come roaring back since a slump early in the pandemic. After the fourth quarter of 2020 saw the highest deal volume ever with 352 deals, the 426 deals in the first quarter of this year topped it by 21%, according to the midyear outlook from PwC.
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Among the key findings of the report:
- Deals appetite has persisted despite high multiples.
- In recent months, the industry has seen six megadeals valued at $5 billion or more, traditional IPOs and special-purpose acquisition company-backed IPOs.
- Deals in this sector are being driven by forces including capital availability, regulatory shifts, evolving competitive dynamics, promising technologies and commitments to patient-centricity.
- Deal volume in long-term care fell slightly during this period, yet the subsector remains the most frequent target for deals.
- The physician group and behavioral care subsectors saw significant increases.
"Looking ahead, we anticipate ongoing interest in the public markets, given recent activity," the report said. "For years, there were no pure health services IPOs, but 2021 has already seen four."
Several megadeals took place in the 10 to 12 months preceding May 15, including Humana's acquisition of the remaining 60% stake in Kindred at Home and Walgreens Boots Alliances' divestiture of its Alliance Healthcare business. By comparison, 2019 and 2020 had only one megadeal each.
"Private equity and corporate capital are plentiful and driving demand for assets," the report said. "Barring surprises — such as a major domestic worsening of the pandemic — we anticipate deal interest at similar levels through year's end and beyond, despite a high-multiple environment."
Regulatory shifts create opportunities and challenges.
"Driven by the pandemic, market forces and the new Biden administration, government-backed health coverage has grown, attracting investors," according to the report. "Regulators have paused several Trump administration-era Centers for Medicare and Medicaid Innovation plans and nudged antitrust concerns into the spotlight.
"This environment could lead some players to diversify revenue streams, add scale or consider alternative collaboration models. Other regulatory priorities, such as price transparency and interoperability, create incentives to share and analyze data, to jostle for ecosystem strength and to partner to enhance patients' and members' experiences."
Alan Goforth
Alan Goforth is a freelance writer in suburban Kansas City. In addition to freelancing for several publications, he has written a dozen books about sports and other topics.
