Healthcare M&A Forecast Brightens, Say Dealmakers

The outlook for M&A in the healthcare sector was much more positive in August than it was earlier in the year, according to Mergers & Acquisitions’ Mid-Market Pulse (MMP), a forward-looking sentiment indicator, published in partnership with CT. 

In August, the sector garnered a 3-month outlook score of 71.0 and a 12-month outlook score of 72.1, much higher than the scores of 53.2 and 59.8 the sector received in March, when we last featured it. Interestingly, there was not a wide disparity between the 3-month and 12-month outlooks in healthcare as there was in some other sectors, most notably energy, in which the long-term outlook was much more positive than the short-term outlook.

In recent months, there has been a significant divergence between the 3-month and 12-month forecasts in general, with hopes being higher for the longer-term outlook. As M&A activity heats up in the second half of the year, the disparity may erode for most industries.

While strong, the healthcare scores did not return to their historic highs, however. In March of 2015, dealmakers gave healthcare a 3-month score of 91.2, the highest ranking ever received on the MMP for any sector. In recent years, consolidation in the sector has been driven by the Affordable Care Act(ACA), as providers have been under pressure to achieve cost efficiencies. For example, the Kroger Co. (NYSE: KR) has acquired Orlando, Florida-based Modern Healthcarea pharmacy that focuses on complex illnesses, from San Francisco, California-based Altamont Capital Partners.

Over time, the impact of the ACA is expected to lessen. Throughout the year, poll respondents have expressed some uncertainty about the future of healthcare M&A, due to the upcoming presidential election.

Thanks to the high level of regulation in the healthcare sector, transaction professionals who work on deals in the industry expressed more concern about the election than their colleagues in other sectors.

Across all sectors, dealmakers said they will be “glad to have the election behind us,” as one survey respondent put it. Another said, “For better or worse, deal activity will be increased after the election, when dealmakers will have a better sense of fiscal trends.”

Read full report here.

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