Managed Care, Long-Term Care Hottest Deal Targets in Health Sector

The appetite for mergers and acquisitions in the health services sector is healthy, as the volume of deals in the first two quarters of the year are on pace with that of the first half of 2013, a PricewaterhouseCoopers LLP (PwC) report suggests. 

But some sectors are faring better than others: The managed care and long-term care industries have seen deal volume upticks of 160% and 20%, respectively, from the first half of 2013. Hospital, behavioral health and home health industries, though, have experienced significantly reduced deal volumes of -50%, -50% and -25%. 

Evolving health care reform has led to many of these mergers and acquisitions in the industry, PwC notes, saying that industry consolidation has helped some providers access a larger population of patients as well as the ability to service the patients for a longer period of time in the continuum of care. 


For example, in 2013, LifePoint Hospital, Inc. completed a $250 million merger of Fauquier Health System, which operates a nursing home, an assisted living center and a range of affiliated clinics and medical practices. 

This move toward consolidation with an emphasis on the care continuum echoes the industrywide push to establish accountable care organizations (ACOs) that the Affordable Care Act (ACA) suggests will help provide better health care at a lower cost. 

In the first two quarters of 2014, merger and acquisition activity (M&A) in the managed care sector spiked to 13 deals, from 5 deals in the first half of 2013.


“In the managed care sector, strategic buyers continue to seek membership volume and infrastructure-related opportunities through acquisitions to offset potentially lower margins under the ACA and to better manage the shift toward population health strategies,” the report states.

Moving forward into the rest of 2014, an increase in activity “is still likely as managed care companies comply with the necessary regulatory and operational requirements and seek opportunities through acquisitions to balance uncertainty and potential financial losses as a result of [the] ACA,” PwC writes. 

In long-term care, the period’s activity was primarily marked by Ventas’s acquisition of American Realty Capital Healthcare REIT — accounting for more than half of the sector’s deal value for the second quarter.

Ventas (NYSE: VTR) announced in June it would acquire ARC Healthcare for $2.6 billion in stock and cash, adding to Ventas’ portfolio 143 properties — 78 medical office buildings, 29 senior housing operating communities, 13 senior housing triple-net properties, 14 skilled nursing facilities, seven hospitals and two land parcels. 

Overall, the long-term care sector has remained fairly level in volume as compared to second-quarter 2013 numbers, though it achieved a 70% increase in deal value in the second quarter of 2014. 

But as traditional players continue to focus on industry consolidation and maintaining their patient base, there is a new evolution of health care that will continue to shift the care delivery model, including nontraditional players that enter the health and wellness services market — including telecommunications, technology, retail or consumer products companies. 

New tech products, such as Apple’s HealthKit, are also changing the health care landscape, but providing opportunities for providers. 

“We expect this evolution in care delivery to continue. However, just like the traditional health care market, this new consumer-focused marketplace is likely to be highly fragmented,” PwC writes. “While many players will try to address this new market with homegrown options, we expect that companies will use M&A to consolidate the necessary technology and intellectual property needed to capture the consumer.”

Read the full PwC report here

Written by Emily Study

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