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Health care leaders expect a busy year for M&As

01/24/2018

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Guest post from Nashville Business Journal reporter, Joel Stinnett

Nashville’s health care industry saw a busy year of acquisitions, strategic partnerships, divestitures and mergers in 2017. If a recent study is correct, this year will be no different.

The LBMC 2018 Business Outlook Report polled more than 260 executives across multiple industries on their business expectations for the new year. Topics included expected revenue, hiring, capital spending and growth. 

One item that didn’t surprise LBMC’s Leader of Health Care Transaction Advisory Services Lisa Nix was health care leaders' strategy for growth in 2018.

According to the report, 5 percent of non-health care companies said they are considering acquisitions in their strategy to increase profitability, compared to more than 21 percent of health care executives.

“Our health care M&A practice saw robust deal flow in 2017, which resulted in our transactions advisory services practice more than doubling in size,” Nix said. “Interestingly enough, we came into 2018 with even more volume of health care M&A deals within our client base as compared to his same time last year.”

Nix said LBMC saw health care deal revenue double in 2017 from the previous year.

While LBMC provides services to health care clients in 44 states, more than 75 percent of the study’s respondents were headquartered in Nashville — the majority of those being in health care.

Nix said the reason health care companies are focused on acquisitions is pressure regarding reimbursements and uncompensated care. Uncertainty over the future of the Affordable Care Act and the recent tax bill, which is expected to result in cuts to Medicaid and Medicare, are fueling the need for increased scale, market penetration and higher volumes, she said.

“There is concern, at least with our clients and what we are seeing in the marketplace, about what all that [the tax bill] really means,” Nix said. “Most are certain that reimbursements are going down, not up.”

According to Nashville Business Journal research, overall M&A activity was down in Nashville in 2017. The NBJ found 38 deals valued over $10 million for a total of $15.9 billion in 2016, compared to 23 deals totaling $10.6 billion last year.

In late 2016, Envision Healthcare (NYSE: EVHC), which owns and operates hundreds of surgery centers, merged with Nashville-based AmSurg to create one of the largest health care providers in the country. The company continued to make acquisitions in 2017, including several physician groups.

On the other hand, Community Health Systems divested from more than 30 hospitals last year, selling a Texas facility to fellow Nashville-based provide HCA Healthcare, Inc. (NYSE: HCA). CHS has been selling assets to pay down $14.7 billion of debt, largely a result of its 2014 acquisition of Florida-based Health Management Associates. That deal temporarily made CHS (NYSE: CYH) the largest provider in the industry in terms of number of hospitals.

CHS’ divestitures accounted for 44 percent of all health care M&A activity in 2017, according to NBJ research.

LBMC Data Scientist Wade Nelson, who led the study, said its health care respondents also spoke of finding ways to streamline operations to save money.

“There was a lot of emphasis from some of the providers on increasing their internal operational efficiencies and looking at third parties who can partner in that,” Nelson said. 

Relationships with providers in the growing outpatient services market is one strategic option for those in the higher cost inpatient marketplace, Nix said.

Other takeaways from the report include cybersecurity as a major concern of health care respondents, a need for skilled clinicians and a focus on data analytics. Seven out of 10 expressed economic optimism, while health care leaders were more likely than their counterparts to cite plans for new products and services.

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