The auction of Executive Health Resources may be hot, but is healthcare M&A also popping?
Well, not really. Healthcare mergers so far this year aren’t on fire. In fact, they’re lower than 2009. There were 283 U.S. announced healthcare transactions so far this year, raising $26.9 billion. This compares to last year when there were 309 deals raising $130.6 billion, according to data from Thomson Reuters.
Private equity sponsored activity, however, appears to be getting stronger. Buyout shops took part in 38 healthcare deals so far this year, valued at $4.7 billion. Last year, there were 32 deals backed by private equity, totaling a meager $136.8 million, Thomson Reuters said.
Richard Cohen, president of healthcare advisory Walden Group, said firms, after the recession, are focusing on their core business and being selective about deals. Some companies are divesting non-core lines while others are looking to fulfill plans that were derailed by the downturn.
“Lots of companies are seeking to recover first and then look at M&A again,” Cohen said.
On Tuesday, peHUB reported that ABRY Partners is looking to sell Executive Health Resources, a medical outsourcer. Medical services firms, which tout significant growth expectations, can fetch as much as 8 times EBITDA in the current market. However, PE shops, which are weighed down by financing issues, are looking to buy in the 5 to 7 times EBITDA range, which is lower than the pre-Lehman days.
It’s unclear how Obamacare will affect healthcare M&A. The healthcare reform package is expected to increase coverage but lower reimbursements for particular procedures. Obamacare will also put more stress on hospitals since they will be providing services to more people. For medical outsourcers like Executive Health Resources this may prove to be a boon. Healthcare providers and hospital systems are already under a lot of pressure from state and local budget cutbacks. Just look at St. Vincent’s here in New York which closed earlier this year.
Under pressure hospitals could use companies like Executive Health Resources that provide outsourced services like administration and accounting. “Hospitals often have a closed system and really require an outside perspective to provide guidance and navigate internal politics,” Cohen said.