The Impact of COVID-19 on Healthcare M&A

The Covid pandemic has placed us squarely in unprecedented times. We know this is not exactly news at this point. However, counter to the tenor of most pieces you've probably read on the topic during the past 12 months, this one aims to shine some light on one industry that has thrived: The US healthcare market, more specifically, healthcare M&A. Healthcare M&A has generally been a big winner in 2020 and into 2021 and it's happening at both ends of the market. Loss of life has been a sad reality of Covid, and the US did not prove to be an exception to the global impact of the disease. To combat this deadly virus and the financial disaster that reverberated from it, federal and state action has played a massive role in both the creation and distribution of vaccines, as well as seeking to gird sectors of the economy most impacted by the pandemic response, or most crucial to battling the disease. And considering the sluggish years that followed the Great Recession, the federal government has erred on the side of a more robust approach versus a more measured response from a fiscal perspective. Stimulus bills proceeded to roll out, injecting money into the economy on an unequal basis, with healthcare emerging as a clear winner.

In late March of 2020, the CARES Act was signed into effect. The emergency relief bill totaled roughly $2 trillion, of which $153.5 billion was directed toward public health. This included hospitals and other health centers, drug access, telehealth, and medical supplies. These businesses essentially received free money to ramp up production and capabilities to meet the demand created by the virus. This pumped their top and bottom lines, as well as their stock prices, to all-time highs. A flood of buyers looking to get in on the trade continued to follow, with companies, both private and public, selling at levels not previously anticipated.

The influx of investments led to an increase in the overall number of deals getting completed and the levels of total consideration in these deals. Healthcare technology, for example, has been a key fast stream during 2020 and early 2021, as "contactless" options for seemingly all human interactions surged (or we even mandated by government entities and actors). One might think of health tech as one "bookend" of the market – it has indeed received a lot of press, and a fair amount of investment capital has followed.

Yet, at the other end of the market, savvy buyers and medical entrepreneurs have been getting together to do some equally interesting deals. Seemingly less attractive but well-placed and well-managed traditional medical practices, which act as the backbone for a strong healthcare M&A environment, are participating on the upside. Physician groups and healthcare facility consolidation were already a significant trend before the pandemic. This trend provided economies of scale that drastically increased margins and market share. Given the macro tailwinds of 2020, these roll-ups continue apace and continue to offer great buyer and seller opportunities. With a long track record of demonstrated upside – combined with a surging healthcare market – it is expected that this trend will continue, if not increase, throughout 2021.

The Covid-19 pandemic was a major "Black Swan" event in the US market and the global world economy. It has not only quickly changed the way people around the world live their lives today but also has spurred healthcare professionals, entrepreneurs, and investors to re-think modus operandi, possibilities, and options across the healthcare market – and to invest accordingly. Whether you are positioned as a well-managed single or multi-office family medical practice, or if you have countless existing (or emerging) tech and/or healthcare products fast-streams, the world is presenting a host of options to consider for buyers and sellers of all stripes.

Author
Bryce Mondor
Deal Analyst
Benchmark International

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