Record number of health care offers end 2021 with a bang

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As expected, December 2021 was filled with over 300 deals in the healthcare sector, the busiest month of the year, bringing the total volume of announced/closed deals for 2021 to nearly 3,000 This was driven by the usual year-end ‘rush’ to close deals, combined with a booming healthcare sector, and investors with over $2 trillion in ‘dry powder’. keen to focus more on growth (and largely recession) investments. evidence) health care space.

December also capped off a busy fourth quarter, as the last three months of 2021 saw the highest deal volume of any quarter of 2021 (762), although deal volume remained relatively flat throughout the year. year, with more than 700 transactions announced or concluded each quarter (Q1: 723; Q2: 721; Q3: 712).

The following seven sectors were the most active, each with at least 100 deals: life sciences (524); medical informatics (422); medical offices (393); medical device (374); cannabis (283); home care (150); and behavioral health (137)

In 2022, activity in these sectors is expected to remain robust (and may even exceed 2021 levels) due to strong investor interest in all aspects of the healthcare industry. Advances in high quality healthcare treatments, technology and diagnostics will always be attractive to investors as our elderly population continues to grow and baby boomers continue to retire.

The volume of transactions in the healthcare sector could, however, be negatively affected due to headwinds resulting from: (i) a precipitous rise in interest rates (to combat inflation), which would increase the cost of borrowed capital and, in turn, could reduce the valuations offered; and/or (ii) exacerbation of supply chain issues.

Medical practices and services

In December, physician practice and services led all industries with more than 50 transactions reported. This sector continues to be extremely active due to a number of factors, including:

  • the desire of doctors to “monetize” the true value of their medical practice when valuations are very high;
  • future uncertainty (and reductions) in reimbursement levels and models of care;
  • increased competition from hospitals and other large companies/platforms;
  • the benefits of being part of larger organizations with substantial capital for growth, advanced EMR/data analytics and seasoned executives; and
  • “FOMO” in terms of offerings they hear about from fellow physicians they trained with, in their communities, and at national specialty association conferences.

About 30% of those deals (or 16) were in the eye care space, followed by 13 primary care groups (including emergency care), six orthopedic practices, and five OBGYN deals.

In eye care, Sheridan Capital’s holding company, Atlantic Vision Partners, was very active during the month, completing five acquisitions that further expanded the group’s presence in Virginia and Tennessee. The platform has completed 16 acquisitions to date since Sheridan Capital acquired the firm in 2019.

Another noteworthy deal was the acquisition of UrgentMED, a large independent urgent care network in Southern California, by Quilvest Capital Partners. Based in West Hollywood, UrgentMED operates 35 urgent care clinics in the Southern California region, including Los Angeles County, Orange County and Ventura County. The deal follows a chain of recent activity involving emergency care providers, including five transactions closed in December.

We expect transaction volume in the medical services industry to continue to grow in 2022 across all subspecialty areas, particularly those with multiple ancillary services (including day surgery), potential for substantial growth, value-based care programs and experienced management. teams.

Life sciences and pharmaceuticals

The life sciences and pharmaceuticals sector leads all other healthcare-related sectors with 524 deals in 2021, up from 384 in 2020.

In December, two major operations took place. The first, the acquisition of North Carolina-based Pharmaceutical Product Development (PPD), one of the world’s largest providers of clinical research services, by Thermo Fisher Scientific, was valued at $17.4 billion. . The addition of PPD will enable Thermo Fisher to offer a full range of services across the entire spectrum of clinical development.

The second was the acquisition of Lyophilization Services of New England (LSNE), a New Hampshire-based development and contract manufacturing operation, by PCI Pharma Services, a global provider of development and contract manufacturing services based in Pennsylvania. The acquisition will create a centralized hub for PCI’s customers in the Northeast and expand the acquirer’s manufacturing capabilities through the addition of LSNE’s five facilities in the United States and Europe.

With new drug approvals at their highest levels in the past 10 years, a strong innovation pipeline, and strong revenues from Covid-19 vaccines and treatments, capital seeking investment within the industry continue to grow. This should continue to generate strong interest in transactions within the sector.

Health care informatics and software

Healthcare IT ended the year with 44 deals announced/closed in December, bringing the industry total to 422 deals in 2021, up 59% from 2020. Demand for further development of IT solutions to streamline care processes and enabling better patient care at healthcare sites will continue to attract investor interest in the sector.

Increased industry efforts to get Congress to extend or make permanent pandemic-related telehealth waivers will highlight the benefits of telehealth; in addition, growing government support for greater interoperability and more widespread data exchange through trusted networks may create new incentives for interoperability solutions.

As a result, we expect healthcare IT to remain among the top sectors for transaction volume in 2022.

Behavioral health

Behavioral health deals reached triple digit numbers in 2021. Some notable deals included Pyramid Healthcare Inc.’s acquisitions of Bluff Plantation and Atlanta Addiction Recovery Center; MindPath Health’s acquisition of Metropolitan Neuro Behavioral Institute PLLC; the acquisition of Polaris Renewal Services by BayMark Health Services Inc.; private equity firms FFL Partners LLC and the acquisition of Community Medical Services by Two Sigma Impact; and Hopebridge LLC’s acquisition of Autism in Motion Clinics LLC.

This industry is not only highly fragmented, but historically had few providers, especially in certain geographies, so demand has exceeded supply for these services. The Covid-19 pandemic has increased the demand for health services for mental health and addiction treatment, and the resulting interaction of low supply and high demand for these services has created fierce competition between investors, leading to ever-increasing valuations.

The sector is also experiencing significant transaction volumes as regulatory and reimbursement changes for these types of services evolve favorably as the medical profession becomes increasingly aware of the need to treat mental health services on par with physical health services. The confluence of all these factors has created optimal conditions for a greater volume of transactions in this sector in the coming year.

Home health and palliative care

Home health and palliative care deals also saw triple-digit deal volumes in 2021, some at significant valuations. For example, Aveanna Healthcare acquired Dunn & Berger Inc., a home healthcare service provider, based in Woodland Hills, Calif., for approximately $225 million.

Other transactions included Traditions Health LLC’s acquisition of Homestead Hospice and Palliative Care; the acquisition of BayCare HomeCare Inc. by Lakeland Regional Medical Center Inc.; and Fortis Home Health & Hospice’s acquisition of Select Home Health Services Inc.

Cannabis

Cannabis deal volume continued its explosive growth in 2021 with 283 deals announced or closed, a drastic increase from 159 deals in 2021. The 23 deals in December means 2021 produced deal volume at double numbers each month.

We expect this push to continue into 2022 due to the combination of continued state easing of regulations and expanding markets beyond typical manufacturing, processing and distribution activities and into transactions involving private capital, analysis and laboratories.

Outlook for 2022

The appetite for investment and the momentum of the strong pace of transactions in 2021 should continue into 2022, as many of the factors that fueled the robust volume of 2021 continue. However, if supply chain issues worsen, inflation rises, and/or interest rate increases are implemented faster and/or in larger increments than expected, we could see investor dismay will grow in the months ahead.

Other factors to consider are the potential expansion of competition scrutiny by the Federal Trade Commission and the Department of Justice into subsectors of the healthcare industry that have significantly consolidated in certain markets. geographic, as well as the possibility of a change of power coming with the mid-term elections in November.

Finally, while investors appear to have weathered the pandemic and political uncertainty very well over the past few years and the positive trading momentum is expected to continue into 2022, at some point the upward spiral in valuations will level off. and maybe normalize. It remains to be seen, however, whether these and other economic factors will dampen enthusiasm for investment opportunities in the healthcare sector at some point in 2022.

This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Gary W. Herschman is a member of Epstein Becker Green in his office in Newark, NJ. Anjana D. Patel is a member of Epstein Becker Green in Newark. Zachary S. Taylor is a partner at Epstein Becker Green in Newark. Hector M. Torres is Managing Director of FocalPoint Partners LLC in Chicago. Larry Kocot is a Senior and National Director, Center for Healthcare Regulatory Insight at KPMG LLP in Washington, D.C. Carole Streicher is a US Senior Partner, Transaction and Strategy Advisory at KPMG LLP in Chicago

Epstein Becker Green’s Timothy McHale; Ryan DeBlaey, Michael Stotz and Jordan Coley of FocalPoint Partners; and Ross White, Puja Ghelani and Shakoor Jilani of KPMG contributed to this article.

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