Healthcare mergers and acquisitions activity reached an all-time record-high value of $388 billion in 2014, which was over $136 billion higher than 2013 levels, driven by nearly 1,300 transactions.  Among the industry’s service sectors, long-term care and hospitals were leaders in terms of number of transactions and value over the past two years.  Continued impact of the Affordable Care Act (“ACA”), cost pressures, and access to capital and patient sources were key drivers of hospital merger and acquisition activity.

These are among the findings of the Merger and Acquisition Trends in Healthcare Services report, released recently by Hammond Hanlon Camp LLC (H2C), a strategic advisory and investment banking firm focused exclusively on the healthcare sector.  This second-edition research report reveals the following prominent trends in 2013 and 2014:

- Scale/Expansion as a Key Driver – Larger hospital systems, as well as other sector players, expanded their scale, geographic reach, or concentration through acquisition activity.

- Not-For-Profit to Not-For-Profit Hospital Transactions – The majority of transactions (70%) within the hospital sector during 2014 involved transactions in which not-for-profit institutions were both the target and acquirer.

- Continued Vertical Integration and Affiliations Across Traditional Silos – Affiliations and vertical integration to access new revenue streams, expertise, or new services was evident.

- Increasing Focus on Non-Change of Control Collaborations and Creative Partnerships – A growing trend of strategic partnerships was evident over full asset mergers, including creative and non-traditional relationships.

- Record Levels of Activity/Pricing in Long-Term Care and Medical Office Building Sectors – Both long-term care and medical office building sales activity reached historically high levels in 2014.

“Mergers and acquisitions remain a key avenue by which many organizations are responding to trends and pursuing growth,” said Michael Hammond, H2C Principal. “Furthermore, creative partnerships are becoming a vehicle in regional markets that have reached saturated consolidation and concentration.”

According to the report, the outlook for healthcare M&A activity in 2015 and beyond remains strong, with the impacts of reimbursement changes, price transparency, technology costs, competitive pressures of ACOs/ health exchanges, and need for efficiencies continuing to fuel transactions. Increased investment in the healthcare industry is likely to be seen among private equity and venture capital firms, especially within technology and specialty sectors that can be aggregated for future sale. Those companies that demonstrate capabilities that improve quality, patient satisfaction, cost efficiency, and utilization of “big data” to drive performance will be in high demand.

“The rising use of technology and ‘big data’ in all aspects of delivering care will have a transformative effect on healthcare cost, quality, and convenience factors, influencing future M&A trends,” said Bill Hanlon, H2C Principal.

The report measures M&A activity by specific sector within the healthcare industry. These sectors include: Hospitals and Health Systems, Physician Practice Management, Managed Care, Long-Term Care, Behavioral Care, Home Health/Hospice/DME, Laboratory, and Real Estate.