2 minute read 18 Dec 2018
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Continued steady pace for health M&A after recent strong quarters

Health executives remain optimistic about the future growth of the sector, as health organizations use M&A to deal with digital disruption.

This article is part of our M&A report Global Capital Confidence Barometer, 2nd half 2018.

The health industry has historically been largely unaffected by the transformative impacts of technology. Not so anymore. The pace and pervasiveness of digital disruption — combined with a rush of nontraditional players entering the market — is threatening growth across the sector. In response, we’re seeing health organizations turn to dealmaking to pursue opportunities in new markets, while shedding assets at risk of disruption.

With pipelines stable, expectations for M&A continue to remain strong, as 44% of health organizations expect to pursue mergers and acquisitions in the next 12 months.

M&A expectations

44%

of health organizations expect to pursue mergers and acquisitions in the next 12 months.

Health executives say seeking an integrated solution and moving beyond their comfort zone are their primary considerations for dealmaking. This aligns with a global trend toward rising incomes in developing markets, and an increase in universal coverage. The fastest way to access these markets is through acquisition. Meanwhile, the streamlined, convenient experiences consumers have in other sectors, such as online banking and retail, have them demanding more from their health care. As a result, health organizations are looking for targets that help them to adopt a more customer-centric business model.

On the flip side, health organizations are using regular portfolio reviews to continually assess their strategic priorities and address investor demands to balance investments with the capital available to finance them. For 71% of executives, these reviews have identified assets ripe for divestment, either because they are underperforming or because they are at risk of disruption.

Portfolio reviews

71%

of health executives have identified assets ripe for divestment, either because they are underperforming or because they are at risk of disruption.

To maximize the synergies of their acquisitions, 43% of health organizations say they are starting the integration process earlier in the deal life cycle. Our findings suggest, however, that they still have work to do, as more than half of health executives admit having achieved lower synergies than those identified.

As we look ahead to 2019, it appears as if private equity will be the big story. More than one-third of health organizations see private equity increasing their activity in the sector, particularly in the home health and behavioral health segments. More than half say they will increase the competition for assets.

Overall, after recent strong quarters of dealmaking, we expect a continued steady pace in the year ahead.

Summary

Health executives remain optimistic about the future growth of the sector, as health organizations use M&A to deal with digital disruption. We expect a steady pace to continue after recent strong quarters and stable pipelines. Download the health sector report (pdf) and infosheet (pdf).

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EY Global

Multidisciplinary professional services organization