Healthcare deals stall, as transaction pros wait for clarity on ACA

Dealmaking in the healthcare industry will continue to drag until there is more clarity about the move to repeal and replace the Affordable Care Act, said dealmakers in recent interviews.

“I think for a while you’ll see less deals,” said Robert Galvin, CEO of Equity Healthcare, a company created in 2008 by the Blackstone Group LP (NYSE: BX) to work with private equity firms and their portfolio companies to manage healthcare costs. Galvin said some questions will be resolved with the passage of the 2018 federal budget.

The healthcare industry is experiencing “soft deal activity right now,” agreed Michael Gaffin, a political strategist at Marwood Group, a healthcare-focused advisory and consulting firm headquartered in New York. Mergers & Acquisitions spoke with Gaffin and Galvin at the recent 9th Annual Healthcare Conference, hosted by the New York chapter of the Association for Corporate Growth (ACG), held at the Metropolitan Club.

“One well-deserving sub-sector that would almost certainly benefit from full repeal, or replacement without Section 6001 of the ACA, is the physician-owned hospital industry,” said Amber McGraw Walsh, healthcare department chair at law firm McGuireWoods LLP, in an interview. The provision is “intended to halt the development of physician-owned hospitals by severely limiting expansion of existing physician-owned hospitals and by stopping the development of new physician-owned hospitals that serve Medicare and Medicaid,” explained Walsh, who is included in Mergers & Acquisitions’ The Most Influential Women in Mid-Market M&A. “Section 6001 has, unfortunately, stymied growth of this important sub-sector in the past.”

Despite the uncertainty, McGuireWoods has been active in the healthcare sector over the last year, representing: Bay Area Physicians Surgery Center in its sale to Hospital Corporation of America; LLR Partners in the firm’s $30 million investment in Schweiger Dermatology Group; American Capital Ltd. in its sale of portfolio company The Meadows to Alita Care LLC; Investors Management Corp. in the acquisition of in-home senior care service provider RiseMark Brands; and Nathan Adelson Hospice in the acquisition of Las Vegas Solari Hospice Care.

The ACA had a significant impact on M&A, as healthcare companies sought consolidation to improve efficiency and save costs. New regulations are likely to spawn another cycle of dealmaking. “There will be investment opportunities,” said Galvin. “There is more than $3 trillion in the sector, and right now dealmakers are watching to find out what the direction is.”