Reshaping Healthcare M&A: How Competition and Technology are Changing the Game

To better understand the drivers and challenges for healthcare acquirers – and to analyze the role of technology in healthcare M&A – West Monroe conducted a survey of 100 market practitioners in partnership with Mergermarket.

Here's what we learned. 

• The top challenge in seeking healthcare deals is the shortage of attractive targets, according to a quarter of respondents (25%). Respondents gave various definitions for “attractive,” but focused mainly on the dearth of targets valued at $100m or less; the difficulty in finding companies with the right technology or products to sustain growth; and the lack of targets that have the right strategic fit for their business. 

• Technology presents both opportunities and a major test for acquirers: A plurality of respondents (36%) said capabilities in this area as the industry makes the slow- but-steady shift away from the fee-for-service model. 

• The ability to adapt is critical: 41% of respondents said a company’s preparedness to respond to regulatory change was a top concern when it comes to operational or personnel issues, and 40% said a management team’s willingness and ability to adapt to market trends was a top priority. The biggest challenge to healthcare companies over the next one to three years will be the fast pace of change in technology. This sentiment is driving M&A interest in healthcare companies with strong IP and up- to-date IT systems. 

• Gaining greater market share in a dynamic market requires thinking outside the box: More than three- quarters of respondents said they would definitely (31%) or likely (48%) seek more joint ventures and alliances over the next 12 to 18 months. 

• 49% of respondents said they were dissatisfied with the compliance and cybersecurity due diligence in their recent healthcare deals – underlining the complexity of the technology landscape in the industry. Relatedly, 58% of respondents said they had discovered a cybersecurity problem at an acquired healthcare company after the deal was done. 

• A variety of regulatory issues are affecting the market, with the transition to value-based care representing the biggest impact on their approach to dealmaking. Acquirers are paying close attention to targets' capabilities in this area as the industry makes the slow-but-steady shift away from the fee-for-service model. 

• The ability to adapt is critical: 41% of respondents said a company’s preparedness to respond to regulatory change was a top concern when it comes to operational or personnel issues, and 40% said a management team’s willingness and ability to adapt to market trends was a top priority.