A recent study by West Monroe and Mergermarket, Reshaping Healthcare M&A, provides an in-depth look at how mergers and acquisitions (M&As) are continuing to transform the industry in the face of mounting complexities.
From aging populations to disruptive technologies, we take a look at the key findings of the US based study, undertaken by 100 senior executives, split between corporate (33%) and private equity (67%). All involved have completed at least one healthcare detail over the last 24 months.
Whilst the US is continuing to witness exponential growth across the healthcare sector, its aging population is driving demands for home healthcare tools and pharmaceutical solutions.
Competition is also mounting as non-traditional players seek to enter the market, such as Best Buy and Amazon, making it imperative for traditional providers to cater to this rapidly changing landscape.
Consolidation is enabling healthcare companies to further scale and retain positions in the market, with 58% claiming this to be the overriding driver. Others involve disrupting incumbents using technology (48%), as well as expanding into new markets (37%).
“Businesses that have matured over time have also accumulated assets that have increased in value. With affordable valuations being key criteria of attractive targets, the number has fallen considerably,” an operating partner at a private equity firm on the East Coast noted.
A number of healthcare companies are consequently entering non-traditional acquisitions, such as Roche’s $1.9bn acquisition of Flatiron Health, in order to harness essential digital tools and remain ahead of the curve.
“Many multi-site healthcare providers do not have that Amazon-like customer experience,” explained Brad Haller, director of West Monroe’s M&A.
“We’re used to that in the consumer space now, but healthcare is still far behind. They often use the excuse of needing to manage patient-protected data, which is valid. But there’s also a real opportunity to improve.”
Popular technologies across the industry include mobile technology – the Samsung and Babylon Health being a recent example. Others factors include enhancing the use of data and analytics (37%), utilising blockchain (30%), telehealth and health wearables, which will all work to reduce escalating healthcare costs and drive the development of patient-led care models.
Through vertically integrated healthcare deals, insurers are also looking to further partner with distributors to deliver a multitude of advantages. CVS Health’s $69bn deal to acquire health insurance giant Aetna is a case in point.
Nonetheless, a dominant focal area is the growing interest in joint ventures, where up to 79% of respondents stated that they will likely go down this avenue within the next 12-19 months.
The mega partnership between Amazon, JPMorgan and Berkshire Hathaway created shockwaves within the industry and caused stocks across healthcare providers to nosedive. Main advantages the study has found will be the access to external expertise and technological capabilities, a reduction in risk profile and will enable businesses to grow top-line revenue more quickly (42%).