Healthcare megadeals led the way in 2017 — and there’s more to come
Tuesday, January 30, 2018
Turns out the first year of the Donald Trump administration was an active year for U.S. health services deals, with deal volume decreasing slightly from 2016, but deal value increasing significantly. Even without 2017's largest transaction — CVS buying Aetna for $69 billion, which accounted for almost 44 percent of total deal value — the total would have been 40 percent greater than 2016 levels. Those are epic numbers.
The recent PwC report, essentially a report card for healthcare company mergers and acquisitions, shows that 2017 was really something.
Per the report, there were five "megadeals." Leading subsectors included managed care and long-term care, but major declines were seen in behavioral care and home healthcare deal volume.
There were increases across all subsectors except ambulatory care, rehabilitation and dental. Labs and imaging saw the largest increase. Interest in IPOs was more muted than the previous two years — none were reported, compared to one per year in 2015 and 2016.
In 2017, the number of deals decreased by 2.5 percent to 967, but deal value increased 145.8 percent to $175.2 billion. Deal volume was greatest in the first quarter with 270 deals, but deal value was the greatest in quarter four with $99.2 billion.
As was the case in 2016, long-term care represented the largest subsector in terms of deal volume with 297, but managed care was the largest subsector in deal volume with $84.8 billion; it also was the fastest-growing subsector in terms of deal volume (up 25 percent) and deal value (up 5,225 percent).
The CVS Health Corp.-Aetna Inc. deal represented almost 45 percent of total deal value for the year, and 78 percent of quarter four's deal value. Other notable transactions, included Thermo Fisher Scientific Inc.'s acquisition of Patheon N.V. for $7.2 billion (Q2 2017) and Avantor Performance Materials, Inc.'s acquisition of VWR Corporation for $6.6 billion (Q2 2017).
In terms of year-over-year growth in volume terms, managed care and physician medical groups grew the most (25 percent and 22.1 percent, respectively). For illustrations, deal value in the managed care subsector was 53 times higher in 2017 than in 2016. The next highest-growth subsectors by value were home healthcare at about 330 percent year-over-year.
PwC predicts deal value activity to continue after 13 previous quarters of growth. There are several reasons for this:
- Uncertainty in the future of the Affordable Care Act and the current political landscape continue to disrupt corporate strategies around all forms of deals
- The resurgence of megadeals in 2017 ($5 billion and greater)
- The continued trend of consumerism among patients and the evolving impact of technology on treatments, cost reduction and care delivery resulting in various forms of deals
- Tax reform is likely to impact all forms of capital decisions across all healthcare subsectors
- Near-record private equity fundraising, coupled with low interest rates and the anticipation of repatriation of overseas cash, is likely to provide increased capital to fund all types of deals for 2018
Hopefully, the year ahead will continue to be better than the years before.
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