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Q4 Market Update & 2020 Year in Review: Strong Outlook for the Year Ahead

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Q4 Market Update & 2020 Year in Review: Strong Outlook for the Year Ahead

In 2020, the healthcare industry was front and center through a challenging and turbulent year for the global economy. However, a rapid return to pre-COVID operating levels across many healthcare verticals serve as an indicator of industry-wide resilience. Sectors providing elective care, such as dental and dermatology providers, while initially impacted heavily, have trimmed expenses and adjusted to local regulations to take advantage of pent up 2020 demand and return to pre-COVID patient volumes. Less exposed sectors such as diagnostics, telehealth, and home health have showed signs of growth in response to heightened demand. Despite the volatility across the healthcare landscape, investor interest has largely recovered to pre-COVID levels, gaining momentum throughout the year to end 2020 with record levels of M&A activity. Strategic add-on acquisitions by private equity-backed, multi-site healthcare platforms have been particularly robust as independent physician practices increasingly seek partnership opportunities to accelerate their recovery, mitigate future risk, and position themselves for growth. Evident by a strong recovery in terms of deal volume and private equity capital committed to new and existing platforms, investors remain enthusiastic to put capital to work in the healthcare sector.

In the fourth quarter of 2020, Provident represented six healthcare services clients through strategic M&A and private equity recapitalizations, including the notable formation of a new oral and facial surgery platform, Beacon Oral Specialists (formerly Atlanta Oral & Facial Surgery). Across these transactions, Provident successfully negotiated transaction structures that considered COVID-normalized 2020 performance to ensure a minimal impact to transaction structure and valuation. Despite immediate slowdowns in deal volume following initial COVID closures, investors and lenders regained confidence over the summer of 2020, driving Q4 healthcare services M&A spend to $25 billion, nearly two times higher than Q3 2020.

With high investor sentiment, Healthcare IT was targeted for investment to shift healthcare from high-cost hospital settings to lower-cost outpatient and in-home care settings. Funding from all sources has continued to increase for healthcare digitalization, as shown by a number of notable IPOs in the second half of 2020. Health benefits platform Accolade went public in July, raising over $200 million in its debut. Since its IPO, Accolade announced the acquisition of 2nd.MD, a virtual medical second opinion consultation provider, creating a highly data-driven, integrated telehealth platform. Similarly, venture capital and private equity investors continue to support the development of healthcare digitalization platforms focused on improving patient engagement and adherence.

In the year to come, Provident expects accelerated consolidation activity following a strong end to 2020. The challenges ahead as operators and investors continue to navigate the effects of the pandemic will define the healthcare industry for years to come. We anticipate increased adoption of technology-enabled healthcare delivery, continued investment in infrastructure to support high-quality care at lower costs, and a renewed focus from payors on preventative health and wellness.

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 Q4 2020 Market Update report, please click below…

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