After a slow year in 2013, healthcare mergers and acquisitions are going gangbusters in 2014. As healthcare providers and pharmaceutical companies try to keep pace in a competitive sector by restraining costs and providing innovative care, deal-making is poised to continue unabated throughout 2014.
Thus far in 2014, the growth in the value of healthcare related transactions has been exponential. During 2014’s Q2, ModernHealthcare reported that global healthcare mergers held a total value of $233.2 billion, nearly five times the value of Q1 ($48.9 billion). That represents a nearly 377% increase, an indication of the potential for this giant and ever-growing sector.
The main driving forces behind the mergers are largely situational. A recovering economy gives companies confidence to pursue growth and consolidation. The solidification of the Affordable Care Act in the US, also known as “Obamacare”, has forced all players from hospitals to care providers to pharmaceutical companies to better integrate services. It has also resulted in lower reimbursement rates, causing many in the sector to look at ways to reduce operating costs as well.
Healthcare providers are also adopting new technology at an unprecedented rate, and industry insiders expect companies to join forces to share expertise as well as cutting-edge equipment and facilities.
In the US, during the first two quarters of 2014, the healthcare information technology sector alone, consisting of IT vendors who work with healthcare providers, payers and pharmaceutical companies, saw an 18 percent uptick in volume of total deals when compared with the final two quarters of 2013, according to a Berkery Noyes report. Over that same time span, total M&A deal value increased 53 percent, from $3.7 billion to $5.5 billion.
The growth is not limited to existing companies joining forces — in fact just the opposite. Outside venture capital investment into the sector reached a record $1.8 billion in Q2 of 2014, and the $2.6 billion raised in funding thus far in 2014 already tops the $2.2 billion raised in the entirety of 2013. Ten funding deals exceeded $50 million each.
The world is also growing older. People aged 60 and over represent the fastest-growing population sector. This sector needs medical services, housing and long-term care more than any other, and investors, real estate companies and the healthcare sector are reacting accordingly.
Senior housing — assisted living facilities, nursing homes and hospice care centers — have seen just as much consolidation as any industry in the senior care sphere. On July 31, for example, Brookdale Senior Living and Emeritus Senior Living Corp. finalized a $2.8 billion merger. The resulting company will dominate the senior living market, with 1,100 communities across 46 states that will cover nearly 80 percent of the US population.
“We are at a transformational point in the history of the company,” Brookdale CEO Andy Smith said in a press release. “With this merger, we will improve our ability to deliver the best, high quality solutions for the growing demographic of aging seniors and their families.”
NorthStar Realty Finance Corp. has also announced itself in 2014 with two blockbuster deals. The first was the$1.05 billion purchase of a group of senior living facilities which form part of a bigger portfolio of healthcare real estate assets owned by Safanad Limited, a global principal investment firms based out of New York and Dubai, and its partner Formation Capital, specialists in senior housing and care, post acute and health care real estate investments.
Speaking at the time of the sale, Safanad’s CEO, Kamal Bahamdan, who has earned himself the reputation of a man who knows how to navigate in complex environments, said: “While this partial exit realizes our expected return, it is also a validation of our senior care investment strategy. Consistent with this strategy, we will continue to actively explore further investment opportunities within this sector, while we maximize the value of the remaining assets.” True to his word, Bahamdan’s Safanad and Formation announced another deal in July, a $150 million acquisition of a 14-unit senior nursing portfolio in the US, with more expected.
The second significant, recent transaction for NorthStar saw the company splash more cash in August with a $3.4 billion acquisition of Griffin-American Healthcare REIT II. The latter company’s medical office buildings and senior facilities in the US and UK will help NorthStar further diversify its healthcare real estate portfolio.
Said Jay Flaherty, NorthStar’s director of healthcare real estate: “With the addition of the high-quality Griffin-American assets, NorthStar Realty’s healthcare real estate portfolio is positioned to be a leading healthcare real estate platform with a strong mix of diversified assets, attractive contractual lease bumps and formidable EBITDAR coverage.”
These mergers and acquisitions are just a few examples of the rampant growth throughout the healthcare sector. As global healthcare reforms continue and the population grows older, investment into the sector and industry consolidation shows no signs of slowing.
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