There is tremendous activity in the healthcare service providers sector, including anesthesia, emergency medicine, hospitalist medicine and radiology.
"We're seeing tremendous interest across the board — anesthesia, radiology, emergency medicine and multiple other practice areas," says Managing Director and Co-Founder of Edgemont Capital Partners Jeff Swearingen. He is also head of Edgemont's Physician Services Group.
Emergency medicine and anesthesia are the most active sectors of the four in terms of dollars invested and volume of transactions, but there is also strong activity in radiology and teleradiology.
"Private equity investment is driving a lot of these transactions," says Mr. Swearingen. "But publicly-traded consolidators are also making deals, creating several large players in each specialty. And some companies are making acquisitions across all of these key specialties. Combined this is creating tremendous M&A activity."
Private equity firms completed 41 healthcare deals in the first quarter of 2015, up from 28 deals a year earlier.
Here are five key trends from Mr. Swearingen:
1. Amongst independent physician groups there is a lot of uncertainty about the impact of healthcare reimbursement and technology demands. "They're concerned about how bundled payments will affect them and the burden of additional administrative demands," says Mr. Swearingen. "There is a lot of uncertainty about what will be required of them going forward."
2. The valuations are high now for these practices, and with the uncertainty associated with future healthcare reimbursement and technology demands, many physicians and physician groups are becoming sellers. "It makes sense for them to take the good values for their practice now and become part of a larger organization," says Mr. Swearingen. "They are becoming part of an increasingly complex and changing healthcare landscape."
3. Most deals are acquisitions by big consolidators, including large publicly-traded companies like TeamHealth, AmSurg/Sheridan and Mednax. "These organizations are staffing thousands of physicians in hospitals across the country," says Mr. Swearingen. "Hospitals have not been active acquirers of hospital-based physician specialties. They are mostly focused on acquiring office-based practices including primary care and multispecialty groups providing a referral base to the hospital."
4. The most active publicly traded consolidators have growing stock prices and their earning expectation are fairly high. "In order to meet those expectations, M&A needs to be part of the equation," says Mr. Swearingen. "These companies are looking to meet the growth expectations Wall Street has for them."
5. There will be increased care cohesion among different specialists working for the same organization as consolidation continues. "If the emergency medicine and hospitalists are united under one parent organization, there is an increased coordination of care," says Mr. Swearingen. "I see the consolidation trend continuing unabated for the foreseeable future. As long as the capital markets remain strong, the underlying rationale for the consolidation seems to be there."