Health Services Deal Value in Q1 Was Above Recent Average

Deal volumes declined in Q1, but they remained above 200 for the 18^th consecutive quarter.

Health services sector mergers and acquisitions decreased in the first quarter of 2019.

The values tripled, when compared with the last quarter of 2018, however, driven largely by the $17.4 Billion Centene-WellCare megamerger, according to an analysis By PWC.

Although deal volumes dropped in Q1, it remained above 200 for the 18^th consecutive quarter. The two biggest private equity deals were in the long-term care sector, with each valued at more than $100 million, including Next Healthcare Capital and Genesis Healthcare's $204 million acquisition of 15 skilled nursing facilities from Welltower.

Despite the relatively slow start in 2019, PWC U.S. Health Services Deals Leader Nick Donkar said he anticipates continued interest in deals from health services companies and private equity firms.

"Buyers are exercising patience and discipline given the uncertainty in the global economy and regulatory environment," Donkar said. "We expect deal volume to increase in the remainder of the year given capital availability, reimbursement pressure, and companies’ continuing interest in expanding services beyond their current capabilities."

The Q1 2019 analysis found that:

• The Centene-WellCare transaction is the largest managed care deal since CVS/Aetna in Q4 2017, and the third-largest deal overall since 2014 (behind Cigna/Express Scripts).
   

• Q1 2019 deal volume declined over the prior year and prior quarter by 21.2% and 28.3%, respectively. This drop should not necessarily be seen as suggestive of future declines.
   
• Although the deal count of 231 was 8.2% Below the 2014-2018 quarterly average of 252, it was still 15.5% above the 200 level that the sector has seen since Q4 2014.
   
• The sector saw similar deal volume in Q2 2017, then witnessed a rebound. A similar rebound is possible in Q2 2019, especially given sustained high levels of private equity capital.
   
• Q1 2019 deal value tripled over Q4 2018, partly driven by a $17.4 billion megadeal (defined as exceeding $5 billion), which accounted for 57.5% of the quarter's value. Q1 2019 deal value was also 16.1% higher than the 2014-2018 quarterly average of $26.1billion.
   
• Excluding megadeals in Both Q1 2019 and the comparison periods, deal value increased 33.5% over Q4 2018 and 122.8% over Q1 2018.
   
• All sub-sectors experienced a decline in deal volume over the prior year, except for Long-Term Care (19.5% growth) and Managed Care (flat).
   
• In terms of deal value, over the prior year, four sub-sectors grew: Physician Medical Groups, Hospitals, Labs, MRI & Dialysis, and Long-Term Care.
   
• There have Been no health services IPOs since 2016.