Despite Industry Headwinds, Health Care M&A Forecast Stays Strong in 2018

Health care senior executives are entering the new year bullish in their mergers and acquisitions (M&A) strategies, according to a survey conducted by Capital One Financial Corporation (NYSE: COF). 

More than 300 senior health care executives were surveyed by the McLean, Virginia-based financial holding firm Between Nov. 15 and Dec. 6, 2017.

Among those surveyed, exactly 50% identified M&A as their primary growth strategy in 2018—a substantial jump compared to last year’s survey, in which 38% of senior executives cited M&A as their top growth plan.


Eyes on new segments

Specifically, 21% of health care executives surveyed expect growth to be driven by new segments or lines of business, down 31% from 2017’s survey. Meanwhile, 20% of respondents predict growth will come from revitalizing their company’s existing offerings, according to Capital One. 

The survey also found that 99% of those surveyed predict that their company’s financials in the new year will match or exceed 2017 performance.


These recent figures are reflective of a similar survey Capital One released in mid September last year, specifically focusing on fourth-quarter M&A activity in the seniors housing and skilled nursing industry.

In the 2017 survey, 89% of seniors housing and long-term care executives predicted that the pace of M&A in the sector will maintain or exceed the current pace over the next year, with 43% expecting an increase in activity.

The last year brought upon a bevy of M&A activity in the skilled nursing and post-acute care field—between Sabra Health Care REIT, Inc.’s (Nasdaq: SBRA) sale of SNFs operated by Genesis Healthcare Inc. (NYSE: GEN), to Kindred Healthcare’s (NYSE: KND) recent acquisition by the trio of Humana Inc. (NYSE: HUM), TPG Capital, and Welsh, Carson, Anderson & Stowe (WCAS).

On the home health front, Louisville, Kentucky-based Almost Family, Inc.’s (Nasdaq: AFAM) and Lafayette, Louisiana-based LHC Group, Inc’s (Nasdaq: LHCG) $2.4 billion merger is another prime example of M&A moves being executed in the post-acute and senior care industry.

“All signs point to an increase in acquisitions in 2018, even following a strong year for M&A in 2017,” Al Aria, senior managing director at Capital One Healthcare, said in a press release. “As liquidity in the market remains high, we’re seeing a continued demand for capital. Barring a significant crisis, we expect another year of strong investment activity in the health care industry.”

Industry headwinds

The majority of health care executives surveyed (62%) expect capital needs to remain steady in the coming year. Meanwhile, a third of respondents (33%) predict an increase in capital needs in 2018, a slight dip from 42%. Only 5% of respondents anticipate their capital needs to decline.

While interest in M&A activity is strong in 2018, health care providers continue to face various industry headwinds, with regulations and reimbursement challenges posing the greatest threat in 2018 for 52% of respondents.

An additional 20% named modifications to the Affordable Care Act as their chief concern. The industry’s transition to value-based care was cited by only 13% of respondents.

“Health care leaders have both eyes focused on robust prospects for growth, and opportunities abound for further consolidation, joint ventures and strategic partnerships,” Aria said.

Written by Carlo Calma