As expected, December 2021 was jammed-packed with over 300 health-care industry transactions—the most active month of the year, bringing total announced/closed deal volume for 2021 to nearly 3,000. This was driven by the customary year-end “rush” to close deals, combined with a booming health-care industry, and investors with over $2 trillion in “dry powder” desiring to increase their focus investing in the growing (and largely recession-proof) health-care space.
December also capped a busy Q4 as the last three months of 2021 had the highest deal volume of any quarter in 2021 (762), although transaction volume remained relatively steady throughout the year, with more than 700 transactions announced or closed in every quarter (Q1: 723; Q2: 721; Q3: 712).
The following seven sectors were the most active, each with at least 100 deals: life sciences (524); health-care IT (422); physician practices (393); medical device (374); cannabis (283); home health (150); and behavioral health (137)
During 2022, activity in these sectors should remain robust (and could even surpass 2021 levels) due to strong investor interest in all aspects of the health-care industry. Advances in high-quality health-care treatments, technology, and diagnostics will always be compelling to investors as our elderly population continues to grow, and the baby boomers continue to retire.
Health-care industry transaction volume could, however, be negatively impacted due to headwinds developing from: (i) a precipitous rise in interest rates (to combat inflation), which would increase the cost of debt capital and, in turn, could reduce valuations offered; and/or (ii) exacerbation of supply chain issues.
Physician Practices & Services
In December, physician practice and services led all sectors with over 50 reported deals. This sector continues to be extremely active based on a number of factors, including:
- physicians’ desire to “monetize” the true value of their medical practices while valuations are very high;
- future uncertainty (and reductions) in reimbursement levels and models of care;
- heightened competition by hospitals and other large companies/platforms;
- the benefits of being part of larger organizations with substantial capital for growth, advanced EMR/data analytics, and seasoned executives; and
- “FOMO” with respect to deals they are hearing about from their physician colleagues they trained with, in their communities, and at national specialty association conferences.
About 30% of these transactions (or 16) were in the eye care space, followed by 13 primary care groups (including urgent care), six orthopedic practices, and five OBGYN deals.
With respect to eye care, Sheridan Capital portfolio company Atlantic Vision Partners was highly active in the month, completing five acquisitions which further expanded the group’s footprint in Virginia and Tennessee. The platform has completed 16 acquisitions to date since Sheridan Capital acquired the practice in 2019.
Another deal of note was the acquisition of UrgentMED, a large, independent urgent care network in Southern California, by Quilvest Capital Partners. Headquartered in West Hollywood, UrgentMED operates 35 urgent care clinics in the Southern California region, including Los Angeles County, Orange County, and Ventura County. The deal follows a string of recent activity involving urgent care providers, including five closed transactions in December.
We expect transaction volume in the physician services sector to continue to be on the rise during 2022 in all subspecialty areas, especially those that have multiple ancillary services (including ambulatory surgery), substantial growth potential, experienced value-based care programs, and experienced management teams.
Life Sciences & Pharmaceutical
The life sciences and pharmaceutical sector led all other health-care-related sectors with 524 transactions in 2021, up from 384 in 2020.
In December, two major transactions took place. The first, the acquisition of North Carolina-based Pharmaceutical Product Development (PPD), one of the largest providers of clinical research services globally, by Thermo Fisher Scientific, was valued at $17.4 billion. The addition of PPD will allow Thermo Fisher to offer a comprehensive suite of services across the clinical development spectrum.
The second was the acquisition of Lyophilization Services of New England (LSNE), a contract development and manufacturing operation based in New Hampshire, by PCI Pharma Services, a global provider of contract development and manufacturing services based in Pennsylvania. The acquisition will create a centralized hub for PCI’s clients in the Northeast and expand the acquirer’s manufacturing capabilities through the addition of LSNE’s five facilities in the U.S. and Europe.
With new drug approvals at their highest levels in the past 10 years, a robust innovation pipeline, and strong earnings from Covid-19 vaccines and treatments, capital looking for investment within the industry continues to grow. This should continue to drive strong interest in transaction activity within the sector.
Health-Care IT and Software
Health-care IT ended the year with 44 announced/closed deals in December, bringing the sector’s total to 422 deals in 2021, up 59% from 2020. Demand for further development of IT solutions to streamline care processes and enable better patient care in alternative care sites will continue to attract investor interest in the sector.
Intensifying industry efforts for Congress to extend or make pandemic-related telehealth waivers permanent will highlight the benefits of telehealth; additionally, growing government support for greater interoperability and more widespread data exchange through trusted networks may create new incentives for interoperability solutions.
As a result, we anticipate that health-care IT will remain among the top sectors for deal volume in 2022.
Transactions in behavioral health reached triple digit numbers in 2021. Some notable transactions included Pyramid Healthcare Inc.’s acquisitions of Bluff Plantation and The Atlanta Addiction Recovery Center; MindPath Health’s acquisition of Metropolitan Neuro Behavioral Institute PLLC; BayMark Health Services Inc.’s acquisition of Polaris Renewal Services; private equity firms FFL Partners LLC and Two Sigma Impact’s acquisition of Community Medical Services; and Hopebridge LLC’s acquisition of Autism in Motion Clinics LLC.
This sector is not only highly fragmented, historically it had few providers especially in certain geographies so demand outpaced supply for these services. The Covid-19 pandemic has increased the demand for both mental health and substance use treatment health services, and the resulting interplay of low supply-high demand for these services has created fierce competition amongst investors leading to larger and larger valuations.
The sector is also seeing large deal volumes because regulatory and reimbursement changes for these types of services is favorably changing as awareness among the medical profession grows for the need to treat mental health services in parity with physical health services. The confluence of all these factors has created optimum conditions for more deal volume in this sector in the coming year.
Home Health & Hospice
Home health and hospice transactions also saw triple digit deal volumes in 2021, some at large deal valuations. For example, Aveanna Healthcare acquired Dunn & Berger Inc., a provider of home health-care services, based in Woodland Hills, Calif., for approximately $225 million.
Other transactions included Traditions Health LLC’s acquisition of Homestead Hospice and Palliative Care; Lakeland Regional Medical Center Inc.’s purchase of a minority interest in BayCare HomeCare Inc.; and Fortis Home Health & Hospice’s acquisition of Select Home Health Services Inc.
Cannabis sector deal volume continued its explosive growth in 2021 with 283 deals announced or closed, a drastic increase from the 159 transactions in 2021. The 23 deals in December mean 2021 produced double-digit deal volume every month.
We expect this surge to continue into 2022 due to the combination of states continued loosening of regulations and the markets expansion beyond typical manufacturing, processing, and dispensing activities and into transactions involving private equity, analytics, and laboratories.
Outlook for 2022
The appetite for investment and momentum for the strong pace of deal activity in 2021 should carry well into 2022, as many of the factors that fueled 2021’s robust volume continue. However, if supply chain problems worsen, inflation grows, and/or interest rate increases are implemented faster and/or in larger increments than expected, we could see investor consternation grow in the months ahead.
Other factors to consider are potential expansion of Federal Trade Commission and Department of Justice scrutiny of competition in subsectors of the health-care industry that have become significantly consolidated in certain geographic markets, as well as the possibility of a shift in power coming with the mid-term elections in November.
Finally, while investors seem to have weathered the pandemic and political uncertainty very well over the past few years and the positive transaction momentum is likely to continue during 2022, at some point, the upward spiral of valuations will level off and possibly normalize. It remains to be seen, however, whether these and other economic factors will temper the enthusiasm for investment opportunity in the health-care industry at some point during 2022.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
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Gary W. Herschman is a member of Epstein Becker Green in its Newark, N.J., office. Anjana D. Patel is a member of Epstein Becker Green in Newark. Zachary S. Taylor is an associate at Epstein Becker Green in Newark. Hector M. Torres is managing director at FocalPoint Partners LLC in Chicago. Larry Kocot is a principal and national leader, Center for Healthcare Regulatory Insight at KPMG LLP in Washington, D.C. Carole Streicher is U.S. lead partner, deal advisory and strategy at KPMG LLP in Chicago
Timothy McHale of Epstein Becker Green; Ryan DeBlaey, Michael Stotz, and Jordan Coley of FocalPoint Partners; and KPMG’s Ross White, Puja Ghelani, and Shakoor Jilani contributed to this article.