Paragon Ventures’ Market Pulse transactions are provided as a matter of public record and compiled to provide an overview of the Healthcare Market Pulse™ of recent acquisition and merger activities within the healthcare and life sciences industry.
The M&A environment for healthcare companies in 2022 has seen its fair share of challenges and many opportunities. Through it all, the healthcare M&A markets continued to deliver significant opportunities for growth and options for management. We expect strategic and private equity acquisition appetites for strong healthcare companies to continue to grow in 2023. Coupled with abundant in-market capital and cross-sector augmentation, the opportunities to explore and execute successful strategic options continue.
Where will we see Healthcare M&A headed in 2023?
As strategic acquirers become increasingly aggressive in their pursuit of new sources of growth, the robust capital markets welcome the next wave of consolidation. Despite significant challenges in reimbursement and other operating factors (ie: human resources), many healthcare providers continue to grow profitably by scaling their businesses. While this growth may come at a cost to gross margins, we see efficient companies continuing to generate strong overall profits and hence, attractive acquisition opportunities. With historic amounts of available capital (dry powder) acquirers are highly motivated to invest in well established, profitable and growing healthcare companies.
What is driving healthcare company valuations, and how is that changing?
Healthcare providers, medical supply & life sciences businesses continue to grow and prosper because of an aging population (demand), advancements in clinical pathways (patient outcomes) and rapidly evolving operating technologies (operational drivers). The results are larger organizations that are more nimble and efficient businesses which are outperforming antiquated and historically profit-challenged organizations.
Buyers and investors are also recognizing the opportunities to enhance scale and profitability with cross sub-sector integrations (homecare, telemedicine, total health management, etc.). Healthcare has always had inherent reimbursement risks and challenges but the over-reaching opportunities for population health will continue to enhance the valuation metrics for those deploying a strategic M&A mandate. Some sectors will continue to command impressive market multiples and valuations for strategic transactions in the year ahead.
In some healthcare sectors, transactions seem to be slowing, particularly in certain sub-sectors that had banner years through the pandemic. To what do you attribute this? Is this a temporary blip or do you expect this downturn to continue?
Similar to your heartbeat, healthcare companies (like all businesses) always have periodic fluctuation. These peaks and valleys reflect the health within these businesses. Historically, changes to Medicare, insurance and other third-party reimbursement rates, regulatory requirements and other operating challenges are scheduled in advance and their impact fairly predictable. Demographics and technology have driven the upside growth in many sectors. We will all agree that the demand for effective, quality healthcare will never go away. Strategic investors recognize this.
The surges of the past three years are an easy example. Some sectors (ie: manufacturers of PPE, ventilators, etc) experienced remarkable growth through the pandemic – as the demand peaked, so did some (not all) associated businesses. Some sectors are simply returning to their pre-pandemic growth trends. Other, such as telemedicine, received a welcome kick-start that will continue to serve us all, well into the future. Interest is being further accelerated as buyers realize the opportunity presented by a growing number of healthcare beneficiaries. When coupled with a consolidating supplier/provider base of companies and the acquisition opportunities become even more attractive.
Subacute and Outpatient Care Takes Center Stage
Through the pandemic and in recent years prior, the cost of medical care at hospitals skyrocketed. The outpatient industry (consisting of home healthcare, telemedicine, ambulatory centers, hospice agencies and urgent care facilities) has become an integral (and rapidly growing) part of healthcare in the US and worldwide. Strategic cross-sector buyers, investors such as private equity groups and most health systems are rapidly expanding into these sectors to consolidate and capitalize on the rising demand for home and outpatient care.
Interestingly, even though the hospitals and for-profit acute care sector performed better than expected this year, hospital’s profitability has (again) been significantly challenged. The Federal government spending on health care grew ~36% in 2020, mainly due to the pandemic response (and much higher then the 6% growth rate of 2019) but costs also rose significantly. If the rear view mirror is any indicator, the year ahead will also see a reset in some sub-sectors as health systems, consolidations, integrations and value based care expand. Coupled with the constant increases in demand and advancements in patient care technologies, some sectors are in for another wild ride in 2023.
Sale. Merger or Recap: Be a good scout and be prepared!
Engage your team of professionals early on in the process. This includes your accountants, lawyers (with M&A experience) and your M&A advisory (such as Paragon Ventures) to help you position and prepare your business for a transaction. Business owners should expect continued scrutiny and thorough due-diligence throughout the sale process. More than ever it is critical to understand what is expected by buyers and investor and be prepare well in advance of the actual event. (See our article on Vital Signs in Healthcare M&A).
Paragon Ventures – Client Focused, Healthcare Transaction Experts
At Paragon Ventures, we expect these trends to continue throughout the New Year. We will be at the forefront helping our clients maximize the value of their businesses and execute successful sales, mergers and recapitalizations. We are not just market makers, we are trusted advisors and partners with our clients. We listen to your specific business and personal goals. Then, When The Time Is Right – Paragon Ventures™ will deploy our experience, expertise, professional training over the past 30 years and 300+ healthcare transactions to develop and execute the best possible transaction for your business.
For more information, confidential email contact us or call 800-719-1555 All inquiries held confidential.
