Bloomberg Law
Jan. 29, 2021, 9:00 AM

Robust Health-Care M&A Volume Ends 2020, Will Continue in 2021

Gary W. Herschman
Gary W. Herschman
Epstein Becker Green
Anjana D. Patel
Anjana D. Patel
Epstein Becker Green
Zachary S.  Taylor
Zachary S. Taylor
Epstein Becker Green
Hector M.  Torres
Hector M. Torres
FocalPoint Partners LLC
Larry Kocot
Larry Kocot
Carole Streicher
Carole Streicher

The volume of announced and closed health-care industry deals in December (222) was the highest of any month in 2020 and 2021 should remain a strong year for deals as the Biden administration doubles down on the pandemic and economic recovery, vaccine distribution accelerates, new therapeutics come to market, and providers and health technology companies innovate to meet evolving patient needs.

In 2020, total deal volume for the year ended at 1,936. Although deal volume slowed in Q2 (354 announced/closed) as the country faced the beginning of the Covid-19 pandemic, investor activity accelerated through the second half of the year: Q3 (496) and Q4 (610).

While the economy as a whole was deeply impacted by the effects of the pandemic, the health-care and life sciences industry appears to have remained largely resilient through the significant disruptions caused by Covid-19.

Physician Practices and Services

Physician practices and services finished the year with 25 deals announced or closed in December, and 71 total deals in Q4. The sector closed out 2020 with 208 transactions, down 5% compared to 2019.

What is significant for 2020, however, is the significant volume of physician group deals notwithstanding the virtual standstill for several months due to the pandemic, as many transactions were canceled or postponed at the onset of Covid-19.

However, transaction activity soared during the last four months of 2020, averaging over 23 deals per month, which signals continued robust activity in this sector into 2021. A major driver of the year-end rush to close these transactions in 2020 was the foreseeable push by the incoming Biden administration to increase the capital gains tax rates in 2021 and beyond.

This increasing trend is driven in large part by the challenges faced by medical practices during the pandemic, and their recognition of real and tangible benefits of being part of a larger practice organization with professional management, well-developed corporate infrastructure, and access to substantial capital—all of which is essential to enable medical groups to better weather future uncertainties and to best position physicians to survive and thrive in the future.

Transactions of note in December included the acquisition of Eye Center of Texas by Shore Capital portfolio company, EyeSouth Partners. Shore Capital continues to add density to its platform in Texas and the Southeast, having made five total acquisitions in 2020.

Eye care was one of the hottest specialties in terms of M&A activity in 2020 due to increasing awareness about the importance of eye health and growing coverage for vision care. The transaction serves as an example of the roll-up strategy financial sponsors are deploying in eye care, as well as across other physician specialties, many of which remain highly-fragmented. Transactions of similar motivation are expected to drive M&A volume across the sector in 2021.

Hospitals and Health Systems

Hospitals and health systems saw 14 transactions announced or closed in December, finishing the year with 113 in total, a 14% decline from 2019. However, despite transaction volume being down over 2019, the sector finished the year on a high note with 36 transactions in Q4, up from 21 in Q3.

The decline in transaction volume is due to the fact that hospitals in most metropolitan regions are already substantially consolidated, and because hospitals have been laser-focused on the pandemic.

Once the pandemic subsides, we expect that hospital sector transactions will pick up during the second half of 2021 and into 2022 as favorable transaction dynamics stemming from eased patient capacity constraints and continued recovery as the Covid-19 vaccine is deployed.

Solo hospitals and small health systems have been financially impacted by the pandemic, and realize now more than ever that being part of a larger health system, with substantial infrastructure and access to capital, is important in order to survive and succeed into the future, so that they will always be there to serve the health-care needs of their local communities.

A notable announced transaction in December is Cleveland Clinic’s proposed acquisition of Mercy Medical Center. The transaction would add a 12th regional Hospital for Northeast Ohio-based Cleveland Clinic, and represents an expansion into Southeast Ohio for the health system. The deal is expected to close in Q1 2021 subject to regulatory approval.

Other growing health systems across the country continue to seek out acquisition opportunities as a way to add facilities and providers in core regions and expand geographically.

Health-Care IT and Software

Health-care IT ended the year with 36 announced/closed deals in December, the second highest month of the year. The sector had 266 deals in 2020, up 31% from 2019. The recent rise in Covid-19 cases is likely to continue interest in development of innovative technologies and solutions to meet surges in patient demand and streamline care processes.

The long-term outlook for utilization of telehealth services remains unclear, however, as the pandemic has created new demands and expectations from patients on where, how, and when they receive care, which, in turn, could lead to more regulatory flexibility to broaden the utilization of telehealth services.

Another contributing factor to the spike in health-care IT deals was the increase in internet traffic stemming from the pandemic leading to the need for more creative, practical, and secure solutions for the provision of health-care services over the internet.

Life Science and Pharmaceuticals

Life science and pharmaceuticals (47) had the highest volume of announced or closed deals in December and for 2020 in total, ending the year with 384 announced/closed deals.

Interest in life sciences transactions is likely to remain high in 2021, particularly as vaccine distribution accelerates, additional vaccines and therapeutics are approved, testing continues to expand, and pharmaceutical companies continue to innovate for a post-pandemic market.

Medical Device and Supplies

Medical device and supplies also ended the year on a high note, with 33 announced/closed deals in December and 247 for the year. Just as interest in innovative life science and health IT products increased as a result of the pandemic, medical device and supply demand is likely to stay strong as the sector supports distribution, storage, and administration of Covid-19 vaccines.

As variants and mutations of the virus emerge, potentially requiring continued immunizations in future years, medical device and supply companies are going to see increased volume making them lucrative targets for investors.


Cannabis sector deal volume rose at an astonishing pace in 2020 closing with 159 deals, far exceeding the 57 transactions in 2019. The 15 deals announced or closed in December mark the eighth month in a row of double-digit deal volume, with Q4 being the most active quarter this year at 46 transactions.

We expect this fast-growing trend to continue into 2021 as states continue to loosen regulations and expand legally permissible applications for both recreational and medicinal marijuana use.

Outlook for 2021

With the Biden administration taking over, attention will turn to what policy and regulatory priorities to expect over the next year. However, given the Democrats’ slim majorities in the House and Senate, investors can expect that there will not be significant system reforms in the near-term.

Rather, the policy focus is expected to remain on stimulating the economy, supporting health sector recovery, and ensuring continued progress on Covid-19 vaccines distribution and development of therapeutics. This continued focus on the pandemic is expected to drive investor opportunities and optimism in 2021, especially in the life sciences and pharmaceutical, medical device, and health IT sectors.

The effects of the pandemic will also continue to drive physician groups, hospitals and other health-care providers to further consolidate to better position themselves for a bumpy and uncertain future.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

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.

Aaron T. Newman, Ryan DeBlaey, and Michael Stotz of FocalPoint Partners; and KPMG’s Ross White, Puja Ghelani, and Shakoor Jilani contributed to this article.

Epstein Becker Green and KPMG did not comment on any particular transaction or party discussed or listed in this article.

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