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Much uncertainty swirls around the health care industry, primarily driven by a lack of knowledge as to what will transpire within the political sphere with regard to the Affordable Care Act (ACA), among other important, relevant pieces of legislation. Further clouding any forecasts are the recent decisions blocking the Aetna-Humana merger and Cigna’s suit against Anthem. Regardless of the justification behind those outcomes, or if appeals go through, when taken in conjunction with political volatility, it’s crucial to take the longer term into account. Even if parts of the ACA are revised via executive orders, the trends it helped accelerate—managing costs better via increasing scale, expanding lines of revenue, consolidation amid smaller providers, etc.—are relatively inexorable.

Uncertainty in the midterm as to what will or will not occur from a legislative standpoint may impact the rate of closing deals somewhat, but the long term essentially remains unchanged.

Key highlights from 2016:

  • After steadily sliding throughout all of 2016, U.S. health care mergers and acquisitions (M&A) volume finally hit a low of 197 completed transactions in the fourth quarter. Deal value stayed steady, however, fluctuating from $44.7 billion in the first quarter of 2016 to $41.0 billion at the close of the year.
  • As the proportion of add-ons to buyouts in the United States overall has only continued to eclipse prior highs, the health care industry was hardly an exception, with a quarter-end spike to over 70 percent of all health care buyout activity to close off 2016.
  • In the wake of such a banner year as 2015 for private equity (PE)-backed exits of health care portfolio companies, 2016 saw the second-highest tally of the decade. Moreover, selling was relatively flat for three straight quarters, reflecting a steady demand for PE holdings, primarily on the part of fellow PE firms and corporate acquirers.

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