US healthcare services M&A outlook
Hayden Boles
by Hayden Boles
Recent market volatility coupled with tightening monetary policy and higher interest rates caused overall M&A market activity to decrease in 2022 compared to the prior year of 2021. Private equity and strategic investors are re-evaluating their allocations and exposure to certain industries that could be most impacted by a negative economic cycle in 2023. Healthcare M&A interest has remained strong despite the pullback, as investors see the US healthcare industry, which is benefitting from the aging population, as a hedge against a potential economic downturn.
Within the healthcare industry not all verticals are created equal. At Hyde Park Capital, we have seen a strong interest in healthcare services specifically across the healthcare consulting, physician practice management, and home healthcare verticals.
Healthcare consulting
The healthcare consulting market is viewed as highly attractive, with historically high transaction revenues and strong growth projections. Over the next five years, the healthcare consulting industry is expected to grow at an annualised rate of 3.9 percent to USD 8.9 billion. A growing need for hospital organisations to fundamentally reinvent themselves, the reinstatement of initiatives paused during the pandemic, and the rising cost of administering treatments have all combined to dramatically increase the demand for healthcare consultants to drive down costs and increase efficiencies for both the payers and providers.
Physician practice management
The physician practice category has been consolidating for some time as providers are finding strength in numbers and eliminating personal risk and the potential liability of carrying a practice. The industry has continued to experience a surge in physician group buyouts, primarily because of the aging baby boomer population and the rising prevalence of chronic conditions. In recent years, private equity firms have shifted their focus to medical specialties which can generate ancillary revenue.
Home healthcare
The home healthcare sector was challenged in 2022 by nurse staffing issues, regulatory changes, and reimbursement pressures. Despite the negativity last year, home healthcare continues to be an attractive industry for long-term healthcare investors. The US population is projected to grow by 10.6 percent over the next ten years from 328 million to 363 million by 2034, with a projected 42.4 percent increase in those aged 65 and above. The short-term pain felt in the industry last year has catalysed consolidation in the number of agencies, a trend which is expected to continue. In 2020, there were around 9,300 home healthcare agencies in the US, down from 9,800 in 2019 and 10,800 in 2014.
Conclusion
Both strategic buyers and private equity groups have record amounts of committed capital and are seeking high quality, profitable investments. Many of today’s private equity groups are focused on healthcare implementation “roll-up” strategies, meaning they acquire several smaller players in different or adjacent geographies and merge them together to benefit from economies of scale. When this happens, retaining the knowledge and expertise of the company owners is often vital. Selling doesn’t have to mean selling out – it can be a strategic solution to improve the health of your company and the lives of your employees, while reducing personal or professional risk and improving patient care.
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Hayden Boles serves as a Vice President at Hyde Park Capital. Specialising in mergers and acquisitions, Mr Boles takes pride in maximising deal value, terms, structure and fit for his clients. Mr Boles is a certified public accountant licensed in North Carolina and Florida. Contact Hayden.
GCG member firm Hyde Park Capital Advisors, LLCTampa, FL, USAT: +1 813 383 0202
Advisory, Corporate Finance
Hyde Park Capital is an institutionally-focused, boutique investment banking firm specialising in mergers and acquisitions and focused on serving the corporate finance needs of successful founder and family-owned companies.
