More than half of senior executives cite market share as the primary driver behind their moves toward consolidation.

Mergers and acquisitions in healthcare have been accumulating at a mighty clip over the past several years, and a big part of the reason is scale. Consolidation helps healthcare organizations increase the scale of their business and retain, or even increase, their market share.

And according to a new survey by West Monroe and Mergermarket, 58 percent of senior executives cite that as the primary driver behind their moves toward consolidation. Expanding into new markets entirely was cited by 37 percent of execs as the main impetus, while 48 percent said they wanted to disrupt incumbents using technology, leading many providers to seek acquisitions of tech and software firms.

For those looking to acquire entities, technology presents both opportunities and a major test, with 36 percent of respondents saying the biggest challenge to healthcare companies over the next few years will be the fast pace of technological change, a sentiment that’s driving M&A interest in companies with strong IP and up-to-date IT systems.

The technology landscape in the industry is complex, illustrated by the fact that 49 percent of executives said they were dissatisfied with the compliance and cybersecurity due diligence in their recent healthcare deals. Case in point, 58 percent said they had discovered a cybersecurity problem at a healthcare company they’d acquired after the deal was already done.

Despite technological challenges, gaining greater market share is still a prime goal, and it doesn’t look like activity will abate anytime soon. About 79 percent of surveyed executives said they would definitely or likely seek more joint ventures and alliances over the next 12 to 18 months.

Regulatory changes are affecting the M&A picture as well, in particular the shift from fee-for-service to value-based payment models, which at 19 percent was the top regulatory concern among surveyed healthcare execs in terms of how it impacted their approach to making deals. Other cited included the government’s decision to end cost-sharing reduction payments to insurers and the repeal of the individual mandate.

In the short term, though, the tax reform law may be the regulatory change with the greatest impact of all on healthcare M&A. Twenty percent of respondents said they expect the biggest effects of the law to be implications for cuts to Medicare, 19 percent cited the impact on immediate CapEx expensing, and 16 percent mentioned changes to the tax liabilities of not-for-profit entities.

2018 is shaping up to be a banner year for mergers and acquisitions. So far, about $156 billion in deals are already done thanks to pharma players like Sanofi, GlaxoSmithKline and Celgene. Meanwhile, a pending deal with Takeda Pharmaceutical Company’s acquisition of Shire that is valued at $45 billion would propel 2018’s year-to-date over $200 billion, making for a record-breaking first quarter.

Source: Healthcare Finance

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