June 08, 2021

M&A Sector Spotlight: US Healthcare Opportunities

By Susan Kindya, Regional Director


Perhaps unsurprisingly, the past year has seen enormous shifts in the US healthcare industry. Together with Mergermarket, Datasite assembled an expert panel to examine how those changes will affect M&A prospects in this sector.

Dane Hamilton, Mergermarket’s Healthcare Editor, moderated the discussion. He started by asking the audience and the panel about their expectations for healthcare M&A volumes over the next twelve months.

68% of viewers forecasted strong growth, and only 6% expected volumes to remain flat or fall. Mark Francis, Managing Director and Head of Healthcare at Houlihan Lokey, agreed with the audience consensus.

“I think we’re going to be in a record period,” he said, pointing out that over 600 deals were announced from the start of 2021 through April.

Michael Kennedy, Regional Vice President at Datasite, said that the company’s M&A platform activity showed a similar trend.

“It looks like we’re seeing the largest value for M&A activity for the opening quarter of a year since they started keeping the stats.”

Newton Juhng, Managing Director, CapitalOne Healthcare, concurred; he noted that his company has seen an ongoing rise in valuations and leverage asks.


COVID-19’s Impact on the Future of Healthcare M&A

The discussion pivoted to the effects of the COVID-19 pandemic. In particular, Dane was curious whether the panelists thought that the shift to virtual meetings would force dealmakers to change their approach.

The experts agreed that while teleconferencing would play an increased role in M&A transactions, there would still be a need for face-to-face meetings.

“We think of it as more of a hybridized model,” Newton said. “When I go to a management meeting, I like to see the body language from a CEO when a tough question is asked.”

Mark added that it was easier to rely on video conferencing for well-established business relationships than new prospects.

“If you’ve worked with somebody for five or ten years, I don’t know that you need to get on a plane to go see them,” he said. “But if you’re building a relationship with somebody new, you’ve got to meet them in person.”


Growing Caution Around SPACs

Addressing the recent drop in SPAC announcements, the panel agreed that the market is growing warier of this type of deal. Driving factors include the subpar aftermarket performance of some high-profile acquisitions, as well as the growing difficulty of locating strong targets.

“You’re looking at a market that’s already been picked over once,” Newton said, “especially in my healthcare IT world.”

Michael also noted that there’s a bottleneck resulting from the need for the SEC to audit the huge existing volume of SPACs. “They just can’t keep up,” he said.

He also pointed to concerns about misleading projections by pre-revenue SPAC targets.

Despite these issues, the audience was optimistic about the overall prospects for SPAC volumes; 46% of respondents forecasted moderate growth, with another 21% anticipating strong growth.

Healthcare Sub-sectors to Watch

Newton gave his perspective on the telehealth sector, noting that the surge in virtual visits will likely decrease. He argued that many sectors - ophthalmology, for example - aren’t well suited to this model. Meanwhile, commercial payers are backing off from their willingness to reimburse for remote appointments at the same level as in-person visits.

Mark listed a few fields that were attractive prospects for consolidation, including veterinary care, behavioral health, and healthcare technology. He also noted that physicians and PPMs have seen a recent surge in acquisitions.

In response to the audience poll, 47% of viewers listed biotech as the sub-sector likely to see the most growth, with 42% voting for medical and 11% for pharmaceuticals.

High Valuations and Mega-Deals

An audience member asked for the panel’s forecast on sales multiples and valuations.

“Valuations are at a pretty high-water mark, particularly for larger, higher-growth companies,” said Mark.

Newton added that there’s growing interest in healthcare payment management, even from companies that didn’t previously have a foothold in the health industry. The desire to acquire cutting-edge technology in this area is driving up valuations.

“Consumer-directed healthcare is becoming a bigger thing,” he said. “Companies that are really good at dealing with consumers, like Google and Amazon, are trying to figure out ways to play...more often than not, they’re not developing it all themselves, they’re acquiring technology.”

He also said that many large entities are experiencing a slowdown in growth and seeking to gain a jolt by acquiring a faster-growing company.


The Big Picture

Many questions about the future of healthcare remain up in the air, but despite some uncertainty, the next twelve months are all but certain to see major M&A activity within the industry. Interested in diving deeper into the discussion? Watch the webinar replay here.

And, as we watch the market adapt to a post-pandemic reality, we’ll continue to share the insights that emerge.

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