• Financial Services
  • Investment Banking
  • Intapp DealCloud

The top 3 trends to watch in healthcare M&A

The COVID-19 pandemic has affected nearly every industry, business, and person in the world. As the biggest public health crisis in over a century, it has changed the way do nearly everything – from work to travel to spending time with friends and family. But the effects of COVID-19 don’t just pertain to the disease itself, many ancillary conditions have risen as a result. It’s these realities that will arguably have longer-term repercussions both for society and for the healthcare industry as a whole.

We recently sat down with Dexter Braff of The Braff Group, a leading M&A advisory firm based in Pittsburg, PA and specializing in behavioral health, digital health, home healthcare, hospice, pharmacy services, urgent care, healthcare staffing, and home medical equipment. As a specialist in several core sectors of the healthcare industry, Braff shared his perspectives on how the pandemic accelerated certain trends that were already in place, as well as initiated some new ones. Below are a few of the biggest expectations he has for the healthcare industry in the year ahead.

Healthcare Staffing Takes Center Stage

Staffing has been an issue within healthcare for much of the last decade. The demand for nurses and physicians has been steadily increasing while the available supply has not kept up. The ability for hospitals and healthcare centers to find the providers they need was becoming a larger and larger issue for years, and Braff expects this to increase substantially – once the pandemic has subsided.

This distinction on timing is important. In Braff’s experience, many nurses and physicians have admirably stayed in their positions as they feel a sense of calling and have a duty to their patients. But nothing lasts forever and sooner or later (hopefully sooner), the pandemic will in fact pass. This is when the staffing shortage will become noticeably more acute. Many of the doctors and nurses who risked their lives and worked long hours will either take extended vacations, sabbaticals, or retire all together. On top of this, many patients have been putting off elective surgeries and while ICU beds are at capacity, other hospital beds are not. We can expect not only pent-up demand for healthcare services but for this to come at a time when doctors and nurses are becoming much less available.

These two events will put added pressure on an industry that’s been struggling to address a widening gap in supply and demand for years. Hospitals will likely be forced to address this by increasing their use of staffing firms. While many healthcare facilities have avoided this in the past due to high sourcing fees, they will soon have limited options. A natural next step will include a dramatic rise in fees charged by staffing firms; the ability for hospitals to pay these fees is still in question.

Staffing M&A has been a very steady cycle and Braff notes that we are in the bottom of this cycle right now. But this is likely to change in a big way over the next 1-2 years.

The Need For Behavioral Health Becomes More Apparent

As mentioned earlier, the COVID-19 pandemic has not just affected those who have contracted the disease – far from it. The behavioral health ramifications, including substance abuse, deaths of despair, and more have increased significantly and may not subside anytime soon. As noted in the New York Times, a recent CDC study found that “more than 40 percent of respondents have reported symptoms of anxiety or depression or increased substance use, in addition to other struggles. And more than 10 percent said that they had seriously considered suicide in the past 30 days, compared with just over 4 percent who said the same thing in 2018.” Similarly, Baptist Health has noted that among the states hit hardest by the coronavirus (NY, NJ, MA, RI, CT), 67% reported an increase in past-month alcohol consumption, with 25% reporting a significant increase.

Issues around depression, anxiety, and substance abuse will only become more apparent, especially as the virus itself comes under control. There will be tremendous focus on behavioral healthcare due to the strain COVID-19 has put on people, and providers helping with these conditions will see considerable growth.

Growth in Hospice and Home Healthcare

Lastly, Braff anticipates a very big year for hospice. As healthcare has become more expensive over the last decade in particular, there has been an increasing desire to get patients out of costly hospital beds and into home recovery, which put home health at the top of many buyers’ wish lists. However, a major change in reimbursement that went into effect in early 2020 put a strain on providers. And with home health and hospice M&A often moving in opposite directions, as interest in home care cooled, hospice heated up dramatically. As a result, valuations for hospice are the highest they have ever been and will continue to be an important area of focus in 2021.

These trends will likely define the healthcare landscape in the year ahead, and where the concentration of deal activity will take place. We’re honored to work with the Braff Group and share the unique insights derived from their distinct place in the market.