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Q2 Market Update: Continued Uptick in Deal Volumes

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Q2 Market Update: Continued Uptick in Deal Volumes

Twelve months ago, M&A activity within the healthcare services industry briefly paused due to the uncertainty surrounding the COVID-19 pandemic. Investor focus switched from acquisition opportunities to maintaining operating stability. Management teams adapted quickly and navigated operating liquidity needs through provider relief funds, PPP loans, and Medicare accelerated payments. Providers developed a centralized operational response through workforce redeployment and assured the safety and quality of care for both patients and caregivers. Resilient providers and committed management teams successfully navigated one of the biggest challenges faced to date. Looking back, the uptick in M&A activity through the second half of 2020 and into 2021 was truly impressive. Economic recovery, vaccine distribution, and innovative technology companies positioned industry operators well to meet patient needs and explore M&A opportunities.

Transaction activity in Q2 2021 exemplified the pent-up demand for deal-making as private equity firms continued their desire to invest in healthcare services. PE sponsors represented 22 of 29 behavioral health closed transactions and deal activity in the dental industry rebounded through a significant interest in three sizeable previously private equity-backed groups (see page 7). Durable medical equipment companies showed continued appetite for inorganic growth and the emergency medical services sector accelerated M&A activity as compared to the prior quarter. Physician services continue be a premium asset in the space, demonstrated by the heightened competition of investors ready deploy capital. Overall, several sectors realized a boost in deal activity driven by consumerism, outpatient delivery model trends, and data analytics. Patients continue to demand price transparency and shop for care rather than ask for referrals, outpatient delivery models continue to save payors and patients money, and operators continue to realize the need for analytics to drive decision-making and manage patient care pathways.

In the coming months, Provident expects deal activity to accelerate, with a potential slowdown in the first quarter of 2022, primarily driven by the proposed capital gains tax increase by the Biden administration. Beyond Q1 2022, M&A activity should continue at a stable pace as providers adapt to two-sided risk payor contracts to improve the quality of care and lower costs for patients and payors. Private equity firms and strategic acquirers also continue to recognize the importance of effective corporate operating systems as it leads to streamlined workflows, enhanced patient care, improved compliance, and optimized revenue streams. The continued investment focus on healthcare enterprise systems, electronic medical record/practice management, revenue cycle management, and patient engagement technologies will continue to drive M&A activity across the health technology sector.

Provident actively tracks and analyzes M&A activity, key developments, and emerging trends among healthcare services verticals. We publish these findings in our quarterly newsletters, which can be accessed here. Provident also invites the readers of our newsletters to view our new Provident Perspectives publications, which focuses on current trends our professionals have identified in a variety of healthcare verticals. You can read some of our new posts here.

To print and download the full Q2 2021 Market Update report, please click below…

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