US Healthcare Provider M&A Activity Fueled by

Low Margins and High Compliance Costs

Research PREVIEW for the

Analysis of Mergers and Acquisitions Trends in

the United States Healthcare Provider Industry

Objectives of the Study

Key study objectives include:

Source: Frost & Sullivan

To analyze the M&A trends in the US healthcare provider industry

To identify the key M&A trends in the industry based on deals across sectors and the nature of buyers

To conduct a financial analysis of the deals with respect to valuation multiples

To identify, compare, and assess sectors that are current and potential hubs for M&A activity

To arrive at strategic conclusions on the basis of the key trends observed

3

The Full Analysis Features the Following Content

Contents Slide Number

Executive Summary 5

Introduction 7

The Key Rationale for M&A 12

Key M&A Statistics 18

Type of Integration 24

Type of Target 28

Key M&A Metrics 31

Transaction Details 35

Conclusion 47

The Frost & Sullivan Story 50

19

9

17

1

19

2

31

0

39

8

41

8

26

0

0

50

100

150

200

250

300

350

400

450

2007 2008 2009 2010 2011 2012 2013

Dea

l V

olu

me

Year

M&A Deal Trends by Volume

The healthcare provider industry witnessed a marked decrease in the number of M&A deals between 2007

and 2008. The deals plummeted around 15.0% between 2007 and 2008. This outcome is primarily due to

economic recession, which began in 2008. However, when the economy started to show signs of recovery in

2010, the deal-making activities accelerated. The deals increased by 58.5% between 2009 and 2010, which is

the maximum year-on-year increase that had happened in the years included in this study. The legislation of

ACA in 2010 harbingered the increased deal activity and the surge in deal volume continued until 2012. The

deal volume increased from 398 to 418 in 2012. With around 260 closed deals, along with 153 deals

announced, consolidation in the healthcare provider industry is expected to continue in 2013.

Healthcare Provider Industry: Volume of M&A Deals, US, 2007–2013

Source: Capital IQ; Frost & Sullivan

62.0

62.8

73.5

74.8

67.7

74.4

78.8

12.0

16.7

14.5

7.9

15.9

10.9

10.2

14.1

20.5

10.8

12.6

12.9

10.9

9.3

5.4

1.2

2.0

2.0

0.9

6.5

2.6

1.5

1.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2007 2008 2009 2010 2011 2012 2013

De

al V

olu

me

(%

)

Year

< $50.0 M $50.0M-$100.0M $100.0M-$500.0M $500.0M-$1.00B > $1.00B

Percent Volume of M&A Deals by Deal Value Range Analysis

Healthcare Provider Industry: Percent Volume of M&A Deals by Deal Value Range, US, 2007–2013

Source: Capital IQ; Frost & Sullivan

The analysis of deals based on the transaction range clearly indicates that, after the advent of the financial crisis, since 2008 the share of low-value deals (<$50.0M) has increased as a percentage of total deals during the entire study period. This trend is accompanied by a drastic reduction in the high-value deals (> $500.0 M) after the onset of the recession in 2007. The analysis of data through November 14, 2013 revealed that only 2 deals with transaction values of more than $500.0 million occurred. This is drastic fall in comparison with eleven deals that happened in 2007. The outlook of credit ratings for not-for-profit hospitals looked bleak. This makes them less credit worthy, thereby making it difficult for them to access capital. This, along with their declining margins, makes them vulnerable to acquisitions. However, the acquirers, especially the private equity investors, will experience an increase in the cost of capital to fund the transaction. A confluence of these factors has created a trend of increasing low-value deals.

Interested in Full Access? Connect With Us

Jennifer Carson North America Corporate Communications

(210) 247-2450

jennifer.carson@frost.com

Research Authors

Dr. E. Saneesh Research Analyst

Business & Financial Services

S. Shrikanth Industry Analyst

Business & Financial Services

Vidya S Nath Research Director

Business & Financial Services

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