Cross-industry partnerships, increasing consumerism to drive more healthcare M&A in 2019

Express Scripts
The healthcare sector saw three megadeals totaling more than $85 billion in value in 2018, including Cigna's acquisition of Express Scripts. (Express Scripts)

Last year was a record-breaking year when it came to healthcare deals and the trend isn't expected to slow down in 2019, according to the PricewaterhouseCoopers Health Research Institute’s latest US Health Services Deals Insights report.

Overall deal volume was up 14.4% from 2017 to the end of 2018, and the fourth quarter of 2018 marked the sixth consecutive quarter with more than 250 deals in the health services sector.

PwC experts pointed to regulatory uncertainty, high costs, cross-industry models and more focus on patients as consumers as drivers of the trend.

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"Although 2019 has started with some economic and regulatory uncertainty, a number of signs suggest that interest in deals will continue this year," U.S. Health Services Deals Leader Thad Kresho said in the report. "Corporate and private equity buyers both have access to significant levels of capital, and with double-digit volume growth in some sectors, it's clear that deals are seen as an important strategy in an increasingly cost-and consumer-conscious ecosystem."

RELATED: Year in review: The provider mergers that made headlines in 2018 

The sector saw three megadeals in 2018 totaling more than $85 billion in value with Cigna and Express Scripts, KKR and Envision Healthcare, and Apollo/RCCH and LifePoint Health.

Other notable transactions included Welltower Inc.’s acquisition of Quality Care Properties Inc. for $4 billion, WellCare Health Plans Inc.’s acquisition of Meridian for $2.5 billion and Amazon.com, Inc.’s acquisition of PillPack for an estimated $1 billion.

RELATED: Report: Hospital mergers and acquisitions in 2018 were fewer but larger

Long-term care continued to be the largest subsector by deal volume with more than 400 transactions, and there was a significant increase in deal activity for behavioral care in 2018 with a 52.6% increase in deal volume compared to 2017 and a 141.9% increase in deal value.  

However, rehabilitation deals declined by 20.4% in volume and 87% in value while managed care deals value declined by 96.8% following 2017's exceptionally large CVS Health Corp.-Aetna Inc. deal.

The health services sector has seen no IPOs since the second quarter of 2016 with the most recent being American Renal Associates Holdings Inc. in 2016 and Surgery Partners Inc. in 2015.

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