Private equity is one of the big cogs of healthcare finance. It has only grown larger and spun faster since the financial crisis of 2008.
That period nearly five years ago was not a good time for anyone, whether they were people who needed hospital care, or those caring for the hospitals. The credit markets shrunk and hardened like a misplaced sandwich in a backpack after a school field trip, while millions of Americans lost their healthcare coverage along with their jobs.
That meant not only a loss of financing flexibility for the industry, but a loss in revenue as many people postponed elective procedures that are normally accompanied by pretty healthy margins.
Add to that the passage of the Affordable Care Act in 2010--which dictated higher quality and greater efficiency in the delivery of services--and the fusion of healthcare and private equity began resulting in weird combinations and new ventures.
Private equity firms began not only buying up hospitals and healthcare systems, but teaming up to fund future acquisitions. Witness deals such as Cerberus Capital Management--the former owner of Chrysler Motor Corp.--is financing Steward Health Care System as it finds acquisition targets on the Eastern Seaboard. Oak Hill Capital has joined forced with Ascencion Health to create a powerhouse network of for-profit Catholic Hospitals in the Midwest.
"Hospital valuations are trading at pretty close to a trough in the industry on a public basis," Trey Crabb, a managing director with Chicago-based Ziegler Investment Banking, which has brokered a number of deals involving healthcare entities and private equity firms, recently told FierceHealthFinance for its new free eBook, Momentum Building: The Current Healthcare Mergers & Acquisitions Market. "It's kind of the right place at the right time."
Meanwhile, health plans and hospitals have become more closely joined as well--or at least have tried to. Witness insurer Highmark's attempts to purchase the five-hospital West Penn Allegheny Health System. But other payer-provider crossover deals have been consummated including UnitedHealth subsidiary OptumHealth buying medical groups and clinics and Humana's recently announced deal to purchase Metropolitan Health Networks.
However, that same uncertain and shifting finance landscape--and still relatively depressed hospital prices--could put some potential M&A deals on the sidelines during 2013.
"They (potential sellers) thought through the changing tax landscape, and they thought about timing, and decided they weren't ready. As a result, we think they are still not ready," Wes Smith, a managing director with CIT Healthcare, told FierceHealthFinance.
For a further discussion of private equity's role in healthcare and payer-provider partnerships check out FierceHealthFinance's free eBook, Momentum Building: The Current Healthcare Mergers & Acquisitions Market.
- Ron (@FierceHealth)