Why Walmart, CVS are pushing legacy healthcare players to think differently about M&A

Mergers and acquisitions deals consolidation
Kaufman Hall takes a look back at 2019 in healthcare mergers. (Getty/Kritchanut)

Industry competition over who controls healthcare’s “front door” is pushing legacy organizations to adopt new ways of thinking about M&A as business models evolve, a new report shows. 

Kaufman Hall released its annual look back at the year in merger trends, and its analysts noted that competition from companies like CVS Health, UnitedHealth Group and Walmart—all of which are pushing into the provider space—are shaping how the industry approaches growth. 

Ken Kaufman, managing director and chair of Kaufman Hall, told FierceHealthcare these disrupters are aiming to disconnect the outpatient care experience from the traditional hospital inpatient one. 

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Even as the industry shifted focus to outpatient care, many facilities were still run and operated by hospitals and health systems. But that’s changing, he said. 

“I think in general what this is doing is upping the stakes for resources in the legacy sector,” Kaufman said. 

RELATED: Winners, losers in 2019’s healthcare M&A deals 

As these pressures force the industry to adapt to new business models, they’re also looking at new ways to partner and work together beyond traditional M&A, Anu Singh, managing partner at Kaufman Hall, told FierceHealthcare. 

He noted that a decade ago more than 80% of healthcare deals were "change of control" deals, or traditional sales and mergers. Over the past several years, that’s been closer 60% of deals, Singh said. 

Singh also said that organizations are looking at the growing prominence of disruptive forces as a call to invest more in operational research and development—building new payment structures or business models to keep up with the times. 

“I think we’re getting into that realm of this industry facing some of the same competitive pressure that other industries did,” Singh said. “Some organizations are adopting the perspective that they need to team up with organizations that are making strides or that have the capital to make those strides.” 

RELATED: After 3 years of growth, digital health funding declined in 2019 to $8.9B, report finds 

That said, traditional M&A isn’t going away, either. Kaufman Hall’s analysis found that there were 92 deals announced in 2019, a slight uptick from 90 in 2018. Three of those deals were “mega-mergers,” in which the smaller partner had annual revenue of at least $1 billion. 

Health systems are also looking beyond state borders for deals, according to the report, and are looking for ways to build scale in other geographies. Four deals announced in 2019 crossed state lines. 

Singh said that there’s no sign that healthcare’s wheeling and dealing will stop any time soon, even if thought processes on what’s most beneficial are changing. That includes both deals between the industry’s biggest players and deals designed to save an organization that’s financially struggling. 

“Top to bottom, I don’t see the factors in our industry that suggest that’s going to slow down,” he said. 

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