Report: Health care M&A deals saw 'extraordinary' growth in 2021

There was a surge in mergers and acquisitions (M&A) in health care across the board in 2021, a new industry report has found. The entire health care sector saw an “extraordinary” volume of deals, according to the report from PwC, with overall deal volumes increasing 56%. M&A activity was strong in the areas of long-term care, managed care, and rehabilitation. Physician medical groups saw a large jump (119% growth) in M&A deals.

“While long-term care was the most popular subsector, it was the number of deals targeting physician medical groups that was particularly notable: over 400 in the 12 months through November 15. This compares to about 200 to 250 deals per year during 2017 to 2019,” the study said. “Practices have experienced challenging economics and may face 2022 Centers for Medicare and Medicaid Services payment cuts as well, which could lead to more consolidation and private equity roll-ups.”

Megadeals and abundant capital

The report also outlined strong growth in “megadeals”—M&A deals valued at $5 billion or more. The PwC report found that while 2019 and 2020 saw just one megadeal each year, the 12 months between Nov. 2020 and Nov. 2021 saw seven such deals, including:

• Four deals targeting the contract research or manufacturing space (all classified as other services, boosting that subsector’s total deal value).
• Humana’s acquisition of the remaining 60% stake it did not own in Kindred at Home.
• Two deals related to Walgreens Boots Alliance: its divestiture of its Alliance Healthcare business and its increase of its stake in primary care-focused VillageMD.

In addition, the appetite for deal-making remains healthy, with private equity and corporate capital interest remaining “plentiful,” according to the report.

A warning note: more regulatory issues are possible

The analysis also concluded that longer regulatory reviews and more scrutiny of deals could be an issue in the future, noting a 2021 federal executive order calling for more aggressive antitrust enforcement in the area of hospital consolidation.

“These developments — along with recent opposition from employees and communities against some mergers that led health systems to scrap deals — could reshape merger plans,” the report said.

Overall, the report finds the disruption of the COVID-19 pandemic has not had a negative effect on health care M&A to this point—in fact, uncertainty about the future may be driving activity as corporate interests work to strengthen their competitive positions.

“The pandemic’s not over but health services and private equity firms are finding plenty of opportunities to invest and grow,” said Nick Donkar, PwC’s US Health Services Deals Leader. “That said, resilience and unlocking value are front and center as competitive and regulatory pressures loom.”