INSIGHT: Long-Term Care Continues to Lead Health-Care M&A Activity

Bloomberg Law

Gary W. Herschman, Member of the Firm, and Yulian Shtern, Associate, in the Health Care and Life Sciences practice, in the firm’s Newark office, co-authored an article in Bloomberg Law, titled “INSIGHT: Long-Term Care Continues to Lead Health-Care M&A Activity.”

Following is an excerpt:

Building off last year’s M&A frenzy, the health-care industry continues to experience high levels of transaction activity as a result of readily available capital and shifting market dynamics.

Through June 2019, total announced/closed transactions reached over 586 deals, compared to 530 at this point last year. A combination of private investment firms with ample capital to deploy, supportive macroeconomic factors and evolving consumer trends have contributed to this high deal volume, with strong expectations for the remainder of the year.

Long-Term Care

The long-term care sector is representative of the most active health-care sector through YTD June, with 143 announced or closed transactions through June 2019. First-half transaction figures have increased 43% from the 100 long-term care transactions through the first six months of 2018.

The aging general population and recent health-care initiatives have expanded the pool of insurance coverage for those that require long-term care. According to the United States Census Bureau, the 65-plus age segment is expected to expand from 52 million in 2018 to 78 million by 2035, representing a nearly 50% increase.

Additionally, Baby Boomer Magazine reported the baby boomer generation is turning 65 at a rate of 3-4 million per year. These advanced age segments are driving service volume within the sector; however, they have had an unfavorable impact on the broader payor mix and reimbursement rates for providers following changes to the Medicare payment model.

Reacting to these unfavorable effects, long-term care organizations have shifted focus to improving operational efficiencies via economies of scale, resulting in further industry consolidation. In addition to strategic acquisitions, long-term care organizations have also attracted interest from financial sponsors such as private equity groups and real estate investment trusts (REITs) due to the sector’s relatively stable cash-flows and inherent value of the real estate that comes packaged with business operations.

With 19 of the YTD transactions coming in June, the rapid rate of consolidation within the long-term care sector shows no signs of slowing down in the foreseeable future.