More than $143.3 billion in healthcare mergers and acquisitions took place in 2012, one of the highest volumes recorded in a decade, according to a report from strategic advisory and investment banking firm Hammond Hanlon Camp LLC.
The total transaction value in 2012 was 38 percent lower compared with 2011. However, the number of transactions increased 6 percent to 1,063 deals, according to the report. High levels of consolidation activity will likely continue throughout this year and into 2014, driven by the need to integrate clinically and prepare for the shift from volume-based reimbursement, says William B. Hanlon III, principal at H2C.
"A lot of the activity we have seen has been around positioning for value-based, at-risk reimbursement," he says.
Here are some more key trends identified in the report.
1. Proactive, strategic transactions are moving into the limelight. "Troubled sales" transactions — which take place due to an organization's financial distress and inability to remain independent — have been declining, according to the report. More frequently, healthcare providers engage in transactions mainly to position themselves in their markets strategically.
"I think more boards are starting to realize that even though they may be financially successful today, the risks going forward are heightened," says Mr. Hanlon. "They need to look proactively at where the market is likely to shape up. I think they're taking a more proactive approach to their futures, acknowledging that consolidation is the trend and trying to find the best partners in advance."
That isn't to say there aren't any more acquisitions taking place due to distressed hospitals, he says. However, proactive consolidation is becoming prominent as a strategy employed by fiscally strong entities.
2. Healthcare providers increasingly seek non-ownership collaborations. Hospitals, health systems and other organizations have shown more interest in forming joint ventures, shared service agreements and other arrangements that allow them to reap the benefits of joining forces without going through a full merger and giving up ownership, according to the report
Mr. Hanlon says this trend goes hand-in-hand with hospitals and health systems becoming more strategic in their transaction activity. "We're seeing a lot of people parsing out, 'What's our benefit in combining, and can we gain those benefits without [giving up ownership]?" he says.
3. Nonprofit mergers will continue at a rapid pace. Merger activity in the hospital and health system sector was up slightly year-over-year in 2012, with 94 transactions. The majority of that activity (almost 60 percent) took place among nonprofits, according to the report.
This is a trend Mr. Hanlon says will likely continue, especially as nonprofits and other healthcare organization seek to strategically position themselves in their markets.
"It's an opportunity for strong organizations to come together and redefine themselves through their combined position in the market," he says.
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