Healthcare M&A activity continued upward trajectory in 2014

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Deal activity in the health services sector started out strong in 2014 finished on an even stronger note, with total deal volume up 16.3% in 2014 compared to 2013, according to a report from PricewaterhouseCoopers (PwC).

The report, “ US health services deals insights: Analysis and trends in US health services activity 2014 and 2015 outlook,” also found that total deal value in 2014 of $61 billion represented an 18.4% increase in 2014 over 2013’s $51.5 billion.

The long-term care/post-acute space delivered the most value and volume of deals in 2014, recording 288 deals worth $29.2 billion—with five of the transactions worth over $1billion.

The report found that the biggest increases in announced deal value by sector include physician medical groups and behavioral health. The behavioral health sector saw a 24% increase in deal volume in 2014, a trend that is “consistent with the renewed focus on such services in the U.S.,” PwC found.

In the physician medical group sector three publicly traded physician management companies generated over 60% of the total deal volume, including the acquisition of Sheridan Healthcare by Amsurg for $2.35 billion in May 2014. Sheridan, which purchased Radisphere in January 2015, recently acquired the 53-radiologist private practice Radiology Associates of Hollywood. “We expect continued consolidation of this fragmented sector to drive similar volume and value trends in 2015,” the report stated.

PwC also noted that another positive sector was managed care, which realized almost a 50% increase in deal volume and a 1,500% increase in deal value. The largest deal was Optum’s $600 million acquisition of Alere Health.

By sector, the largest drops in deal value were seen in acute care hospitals (down 88%) and rehabilitation hospitals (down 43%).

As far as private equity activity in 2014 was concerned, there were 62 announced transactions in 2014 compared to 58 the year before.

“This stable level of deal activity was bolstered by several large investments as the financing environment remained favorable,” the report states. “However, consistent with our quarterly reports in 2014, crowded auction processes and rising prices are challenging many PE buyers.”

Looking ahead into 2015, PwC expects to see similar deal activity across all sectors.