Ankura’s Quarterly Healthcare Transactions Review
Ankura is pleased to present an overview of healthcare services transactions announced or closed during Q3 2024 in the United States. The total number of transactions decreased by 2.8 percent in the third quarter of 2024, following a decrease of 3.1 percent in the second quarter. Compared to the third quarter of 2023, transaction volumes for the third quarter of 2024 declined by 3.8 percent.
Source: Scope Research Healthcare M&A Volume Database
Notable Transactions Announced or Closed in Q3 1
- On August 1, 2024, investment funds affiliated with TowerBrook Capital Partners and Clayton, Dubilier & Rice entered into a definitive agreement to acquire R1 RCM Inc. for approximately $8.9 billion. This transaction implies a price to Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) multiple of 12.2x to 13.6x R1 RCM Inc. (NASDAQGS:RCM) is a leading provider of technology-driven solutions that assist healthcare providers in increasing revenue, managing costs, and streamlining operations.
- Carlyle reached a definitive agreement on August 13, 2024, to acquire the Kidney Care segment (to be named Vantive) of Baxter International, Inc. for $3.8 billion. This transaction implies a price to revenue multiple of 0.9x. Vantive offers products and services to healthcare providers for peritoneal dialysis, hemodialysis, and organ support therapies, including continuous renal replacement therapy.
- The Vistria Group announced a recapitalization transaction valued at $2.5 billion for Soliant Health on July 29, 2024. This investment implies a price to revenue multiple of 2.5x and a price to EBITDA multiple of 9.6x. Soliant Health specializes in identifying and recruiting healthcare professionals across a wide range of specialties and connects them with healthcare providers in the education, nursing, and pharmacy segments, primarily on a temporary basis.
- On August 14, 2024, Orlando Health announced a binding asset purchase agreement to acquire three Florida hospitals from Steward Health Care for $439.4 million. This transaction implies a price to revenue multiple of 1.0x and a price to adjusted EBITDA multiple of 7.1x. The acquisition of Rockledge Regional Medical Center, Melbourne Regional Medical Center, and Sebastian River Medical Center will add nearly 600 beds to Orlando Health. This sale is part of Steward Health Care’s ongoing divestiture of its hospitals following its bankruptcy filing in May 2024.
Key Observations
Transaction activity in the healthcare services sector continued to decline in the third quarter of 2024. The number of announced transactions reached its lowest level since the third quarter of 2020. High borrowing costs, inflationary pressures, and increased regulatory scrutiny surrounding healthcare transactions have likely caused many industry participants to delay mergers and acquisitions. Although the Federal Reserve cut interest rates by 50 basis points, the announcement came in mid-September, leaving little time for a rebound in transaction activity with the quarter.
Additionally, healthcare investors, private equity, in particular, face heightened regulatory scrutiny. The Federal Trade Commission held a virtual workshop in March 2024 that discussed the negative impact of private equity in healthcare, highlighting lawmakers’ increased focus on private equity investments. Of the announced transactions in Q3, the percentage with private equity funding declined to 7 percent, compared to almost 12 percent in Q2 and 10 percent in Q1. While we believe that private equity investments in healthcare are critical to innovation within the sector, the increased scrutiny will likely continue into 2025.1
As shown in the figures below, recent healthcare acquisitions continued to be dominated by three sectors: Professional Services2, Outsourced Services2, and Behavioral Health. The Professional Services sector remained the most active in terms of total transactions, driven by ongoing interest from both health system and private equity buyers, and accounted for 54.8 percent of total deal volume.
Source: Scope Research Healthcare M&A Volume Database
In the Professional Services category, the majority of transaction activity occurred in Dentistry, with 130 announced transactions. This activity is largely driven by Dental Service Organizations (DSOs) acquiring and/or partnering with dental practices. MB2 Dental, Imagen Dental Partners, and GPS Dental were particularly active with transactions during Q3.
While Behavioral Health remains a significant player in healthcare M&A, the number of transactions has continued to decline. Following the pandemic, transaction activity for Behavioral Health facilities rose sharply as demand for mental health and substance abuse treatment services increased. However, transaction activity has been on the decline since 2022, and the number of announced transactions in Q3 is the lowest since the second quarter of 2020.
The Hospital sector experienced a significant jump in transaction activity, rising by 50 percent in the third quarter, particularly due to activity related to the divestiture of Steward Health Care hospital assets. In addition to its acquisition of three hospitals from Steward Health Care, Orlando Health announced an acquisition of a 70.0 percent controlling interest in five hospitals from Tenet Healthcare.
HonorHealth assumed operations of multiple Steward Health Care facilities in Arizona. Quorum Healthcare took over the operations of Steward Health Care’s Odessa Regional Medical Center and Scenic Mountain Medical Center. Healthcare Systems of America assumed several Steward Health Care hospitals in Florida, Texas, and Louisiana. The Ankura Transaction Advisory team supported due diligence efforts for several of the Steward Health Care-related transactions.
Prime Healthcare announced in July a definitive agreement to acquire nine hospitals from Ascension Illinois. The transaction includes Ascension’s associated post-acute and senior living facilities and, upon closing, would mark the largest acquisition completed by Prime Healthcare.
Future Outlook
Looking ahead to the fourth quarter and the beginning of 2025, healthcare investors will be closely monitoring the cost of capital, economic conditions, and the regulatory landscape. Beyond the September rate cut, most economists are predicting two additional rate cuts to end the year. The projections released as part of the Federal Open Market Committee’s September meeting indicate expectations for the federal funds rate to be cut 50 basis points cumulatively in the fourth quarter, with an additional 100 basis point cut predicted by the end of 2025.
Investors will also be watching the results of the upcoming election and its potential impact on healthcare transactions. Of particular significance is the future of Federal Trade Commission chair Lina Khan, who has led aggressive oversight of private equity in healthcare. It remains to be seen if the next president will replace Chair Kahn, but private equity investors are hopeful for a softer regulatory oversight.
Private equity investors received positive regulatory news at the end of the third quarter when California Governor Gavin Newsom vetoed Assembly Bill 3129. If passed, the legislation would have increased regulatory scrutiny for financial investors, including a requirement for written consent from the California attorney general at least 90 days before an acquisition. While comparable legislation has been introduced in other states, investors are hopeful that the veto in California may serve as an indicator of similar legislative decisions across the country.
We anticipate that healthcare M&A activity will increase in 2025, involving larger transactions of platforms that are primed for exit and continued investments in Outsourced Service providers and Professional Services providers.
About Ankura Healthcare Transaction Advisory Services
Healthcare transactions are inherently complex. With deep industry experience, Ankura delivers insights to make informed investment decisions in mergers, acquisitions, and partnerships.
Ankura’s Healthcare Transaction Advisory team is deeply rooted in the healthcare sector, leveraging extensive industry knowledge and expertise to anticipate critical financial accounting aspects of transactions while also understanding the operational drivers. This enables us to proactively address these aspects of transactions.
What sets us apart is the collaboration between our financial accounting due diligence experts and Ankura's specialized teams in healthcare valuation, healthcare operations, tax, information technology, commercial strategies, and human capital. This collaboration ensures a seamless, integrated reporting process for our clients, combining diverse expertise to provide a holistic view of every transaction. Our approach guarantees that our clients receive nuanced, actionable insights in a unified and strategic manner.
With senior deal professionals engaged in every transaction phase, we provide immediate updates on significant deal factors and a dedicated analysis of any critical issues, ensuring a thorough understanding and resolution of underlying concerns.
Connect with our Healthcare Transaction Advisory experts to confidently navigate the complexities of healthcare. Meet our dedicated professionals on the following page and reach out to us for more information.
1 Recently, Vin Phan, Senior Managing Director, and Global TAS Leader, sat down and discussed with Susan Morse, Executive Editor of Healthcare Finance News, to discuss the need for private equity investments in healthcare (https://www.healthcarefinancenews.com/news/himsscast-private-equity-bad-guy-healthcare).
2 The Professional Services sector includes dentistry, physical therapy, physician practices, urgent care, veterinary, and other clinics. The Outsourced Services sector includes billing, revenue cycle, management services organizations, marketing, staffing, and other services commonly outsourced by medical practices.
3 Sources: Scope Research Healthcare M&A Volume Database, published by Scope Research; Capital IQ
© Copyright 2024. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
