Healthcare M&A Outlook
According to Fortune, healthcare, technology, and energy were the most active sectors for mergers and acquisitions in 2019. Deal-making in the healthcare sector was $533 billion in 2019, up 26% from 2018.1 Medical practice consolidation can often provide positive results. Larger scale physician practices are able to invest in infrastructure and technology, providing greater clinical support that, in turn, improves patient outcomes and drives physician productivity.
How Will COVID-19 Change the M&A Landscape in the Healthcare Sector?
COVID-19 is likely to result in a global recession in 2020. Many experts are predicting a sharp decline in Gross Domestic Product in Q2 and Q3 of 2020, and then stabilizing in Q4. However, no one has a crystal ball and the uncertainty may drive healthcare M&A volume upwards, under the impression that a larger organization can better withstand the downward financial pressures social distancing is extracting. The cash crunch facing many practices currently may lead to lower multiples, as panicked owners may grab the closest lifeline available.
Physician practices have a few options to help cushion the current blow from the forced shut down of all but essential services. Congress appropriated $100 billion in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (PL 116-136) and $75 billion through the Paycheck Protection Program and Health Care Enhancement Act (PL 116-139) for healthcare providers. HHS is distributing this money through the Provider Relief Fund, and these payments do not need to be repaid. The CARES Act Provider Relief Fund is being administered through HHS and has already released $30 billion to providers and is in the process of releasing an additional $20 billion, with more funding anticipated to be released soon. This funding will be used to support healthcare-related expenses or lost revenue attributable to the COVID-19 pandemic and to ensure uninsured Americans can get treatment for COVID-19.
Positioning Your Medical Practice for M&A Post COVID-19
Although we are in a self-induced shock currently, many experts see it as short lived and activity picking up and reaching pre COVID-19 levels sometime in Q3 2021. Arizona was in good shape before the virus outbreak and growth should accelerate once the virus is under control. Healthcare practices in Arizona will benefit from the current population growth trends forecast for the region along with an aging population who will require more healthcare. You must demonstrate a history of stability, strong leadership, and favorable community and patient reputation in order to be attractive to buyers. Practices that use current technology, have efficient processes, and a trained workforce will enjoy higher multiples. Many buyers encourage owners to stay on to ensure a smooth transition and act as a physician, leaving the HR headaches, billing, and compliance headaches to the new owners. Win-Win!