Value over volume: Healthcare M&A trends

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EY - Gregory Park

Gregory Park
Partner, US Health Transaction Advisory Services (TAS), Ernst & Young LLP

Greg has more than 25 years of investment banking and consulting experience across a spectrum of areas, including business strategy development, mergers and acquisitions (M&A) advisory, public and private equity (PE), convertibles, high-yield, fixed income and leveraged finance. His industry teams focuses on strategy development, strategic business review, corporate finance analysis, sell-side M&A, buy-side M&A, corporate divestitures, leveraged buy-outs, spin-offs and carve-outs, synergy analysis, takeover defense, joint ventures, pre-distressed and distressed situations, governance and control issues, debt and equity capital raising. Greg has advised on and executed more than 100 transactions with more than US$100 billion of deal value.


EY - Dan Shoenholz

Dan Shoenholz
Managing Director, Co-head of Health Care Parthenon EY, Ernst & Young LLP

Dan has more than 20 years of experience in commercial due diligence, corporate and growth strategy, portfolio optimization, business plan development and performance improvement.

Dan has worked extensively with companies and PE firms on both front-end strategic analyses and transaction-related advice across a wide range of industries. He has deep experience in a number of areas in the health care industry, including multisite providers, academic medical centers, hospital services, health care technology, revenue cycle management, medical devices and specialty pharmaceuticals. Prior to joining Ernst & Young LLP in 2009, Dan was a senior manager in the Private Equity Advisory and Strategy practices of Bain & Company.


EY - Adam Sorensen

Adam Sorensen
Principal, US Health Transaction Advisory Services (TAS), Ernst & Young LLP

Adam is a Principal within Ernst & Young LLP Transaction Advisory Services focusing on integration and carve-outs for health care systems and health plans. He has served as a strategic advisor to regional and national health system leaders and boards on complex transactions. Adam’s transaction experience spans all aspects of the merger life cycle with a specialty in leading large, complex health system integrations and carve-outs with focus on synergy definition, realization and program management. He has deep experience across the health system enterprise in strategy, operations, finance, technology and organization design. Prior to joining the organization Adam was a principal at Deloitte Consulting.


Health care M&A will remain strong in 2017, driven in part by the expectation that the costs of care will increasingly shift to a value-based model. Health care dealmakers have been busy in recent years. EY’s Gregory Park, Dan Shoenholz and Adam Sorensen have been at the center of the action. In a wide-ranging interview, the three describe the drivers of M&A in 2017, hot subsectors and the most important trends.

Do you expect M&A activity to remain strong in 2017 across the US$3.3 trillion US health care industry?

Gregory Park: Given the drive for health care companies to capture more of the health care dollar, as well as to develop direct consumer-facing brands, M&A will remain a strategic imperative for these companies.

How important is the move to value-based reimbursement as a driver of deals in the health care space?

Adam Sorensen: In recent years, providers have begun to recognize, as we shift from a volume-based reimbursement environment to something that’s more value-based, that having different pieces of the care continuum is more and more important. Payers and providers are going to be looking for more vertical acquisition-type opportunities. Building out a care continuum will lead to more effective outcomes for patients, and that’s going to benefit shareholders.

In what specific subsectors do you expect to see strong dealmaking activity?

Dan Shoenholz: In the core markets, you’ll see hospitals continuing to acquire additional capabilities — mostly outside of the hospital bed, such as post-acute care. You’ll see mergers of hospitals, likely accelerated by the coming pressures on their economics. On the PE side, there will be a continued focus on multisite physician operators and clinical businesses — whether they be physical therapy, urgent care or dental practice management. Dermatology has been very active. And I think there are other specialities such as ophthalmology and gastroenterology that might follow in these footsteps.

What about medical devices?

Shoenholz: Medical technology’s business model evolution is a number of years behind pharmacology. It’s behind in evolving the sales model as well as in taking more of a category leadership and portfolio approach to the business. It’s behind in technology and innovation. The devices space is also very fragmented. And so those factors will play out in M&A themes.

How do you think those rejections will inform the appetite to do large, ambitions deals going forward?

Park: Each antitrust rejection presents its own set of circumstances. I don’t believe these will have a chilling effect on other M&A activities, large or small, because each has its unique set of dynamics. The market is moving in a way that requires providers and insurers to both gain scale and create efficiencies that will necessitate M&A activity down the road. Valuations are currently quite high. How are PE buyers justifying the prices they’re paying?

Is that leading to deal opportunities?

Sorensen: Health care is still a very local business. Health care organizations, especially national health care organizations on the provider side, have really looked to divest certain markets where they weren’t as competitive. They recognize the energy that it takes to be successful in today’s environment with all the complexities. So they’d rather focus and channel their resources and energy into markets where they are first or second in market share. You really do have to get into the details of what makes a local market tick in order to be successful.

Ultimately, how impactful will new legislation around health care be on the M&A market?

Park: So the Affordable Care Act presented a tectonic shift in the way that health care is delivered and paid for in America. The question now is whether, under the new administration, there will be another tectonic shift in the market, with aftershocks.


To view the full interview and report, click here