Health Care

Last updated: Cover Story

Innovation and volatility translate into plentiful M&A opportunities, as organizations remake themselves or grow to meet shifting demands

Sector Snapshot

Health care is perhaps the most talked about industry today. Between the implementation of the Affordable Care Act (ACA) and the push for lower health care costs with better outcomes, companies in the industry are constantly changing. Innovation and volatility often translate into plentiful M&A opportunities, as organizations remake themselves or grow to meet shifting demands. However, it's important to note that while opportunities were plentiful in 2013, dealmakers were cautious. This was widely blamed on dealmakers taking a wait-and-see approach to the rollout of ACA. However, with the ACA now taking full effect, the hesitancy toward investing in the sector is expected to dissipate in 2014.

"The fundamental thing that ACA does is to provide insurance for about 30 million people who were previously uninsured; as coverage increases, spending on health care will increase. That's a positive development for investors. And health care companies will benefit from the growth," says Philip Borden (pictured), a general partner with Boston-based Riverside Partners, which invests in health care and technology.

Many dealmakers expect to see M&A activity pick up this year. The focus for M&A transactions is expected to be on long-term care, home health care and rehabilitation, in addition to continued consolidation among hospitals and care-giver groups.

Notable Deals

The year was not without significant deals that epitomize the trends that are expected to continue in 2014. In September, IPC The Hospitalist Company, Inc. (Nasdaq: IPCM), which manages groups of physicians who practice exclusively in in-patient facilities, acquired Kansas City-based Metropolitan Pulmonary and Hospital Medicine, P.C.'s hospitalist assets.

Private equity firms are also investing. In April, New York-based Harvest Partners acquired AxelaCare Health Solutions from Denver-based Excellere Partners. Based in Lenexa, Kan., AxelaCare is a full-service home infusion therapy provider. Since the acquisition, Harvest and AxelaCare have been busy. In November, AxelaCare acquired SCP Specialty Infusion (SCPSI), parent of Sirona Infusion Inc., an acute home infusion provider, from Chicago-based Shore Capital Partners. In another transaction, in July Los Angeles-based Marlin Equity Partners acquired eHealth Solutions Inc., a provider of clinical software for long-term care.

Coming Up

"Health care will continue to move to provide care for less cost, so patients treated in a hospital will be moved to a clinic setting, and patients in a clinic may get moved to a home-care setting. Anything that takes cost out of the system will be of interest to buyers. Additionally, the health care industry is woefully behind in its use of technology. Companies that improve technology in the hospital setting are also going to be of strong interest," says Borden, adding that Riverside Partners' portfolio company Stinger Medical bought EnovateIT in July to form Enovate Medical. The Murfreesboro, Tenn.-based company manufactures mobile clinical workstations that allow doctors and nurses to input electronic health record data at a patient's bedside.

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Danielle Fugazy