Health Care Executives Begin 2018 Bullish on M&A Front

Senior officials from skilled nursing and other health care companies are approaching 2018 confident in their mergers and acquisitions (M&A) strategies, according to a survey conducted by Capital One Financial Corporation.

Among those surveyed, exactly 50% identify M&A as their primary growth strategy in 2018 — a substantial growth compared to last year’s survey, where 38% of senior executives cited M&A as their top growth plan.

More than 300 senior health care executives were surveyed by the McLean, Va.-based financial holding firm.

Eyes on new segments

Specifically, 21% of health care executives surveyed expect growth to be driven by new segments or lines of business, down 31% from 2017’s survey. Meanwhile, 20% of respondents predict growth will come from revitalizing their companies’ existing offerings, according to Capital One.

The survey also found that 99% of those surveyed predict that their company’s financials in the new year will match or exceed 2017 performance.

These recent figures are reflective of a similar survey Capital One released in mid-September 2017, specifically focusing on fourth-quarter M&A activity in the seniors housing and skilled nursing industry.

In the September 2017 survey, 89% of seniors housing and long-term care executives predicted that the pace of M&A in the sector will maintain or exceed the current pace over the next year, with 43% expecting an increase in activity.

The last year brought a bevy of major deals in the skilled nursing and post-acute care fields—from Sabra Health Care REIT, Inc.’s (Nasdaq: SBRA) sale of SNFs operated by Genesis Healthcare Inc. (NYSE: GEN), as well as its purchase of 24 West Coast SNFs, to Kindred Healthcare’s (NYSE: KND) departure from the skilled nursing industry entirely.

On the home health front, Louisville, Ky.-based Almost Family, Inc.’s (Nasdaq: AFAM) and Lafayette, La.-based LHC Group, Inc’s (Nasdaq: LHCG) $2.4 billion merger is another prime example of M&A moves being executed in the post-acute and senior care industry.

“All signs point to an increase in acquisitions in 2018, even following a strong year for M&A in 2017,” Al Aria, senior managing director at Capital One Healthcare, said in a press release. “As liquidity in the market remains high, we’re seeing a continued demand for capital. Barring a significant crisis, we expect another year of strong investment activity in the healthcare industry.”

Industry headwinds

The majority of health care executives surveyed (62%) expect capital needs to remain steady in the coming year. Meanwhile, a third of respondents (33%) predict an increase in capital needs in 2018, a slight dip from 42% in 2017. Only 5% percent of respondents anticipate their capital needs to decline.

While interest in M&A activity is strong in 2018, health care providers continue to face various industry headwinds, with regulations and reimbursement challenges posing the greatest threat in 2018 for 52% of respondents.

An additional 20% stated that modifications to the Affordable Care Act was their chief concern. The industry’s transition to value-based care was cited by only 13% of respondents.

“Health care leaders have both eyes focused on robust prospects for growth, and opportunities abound for further consolidation, joint ventures, and strategic partnerships,” Aria said.

Written by Carlo Calma

Carlo Calma on Email
Carlo Calma
Business Reporter at Aging Media Network
Carlo enjoys running and taking indoor cycling and rowing classes. He tempers his active lifestyle by indulging in Chicago's diverse food scene.

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