Home health industry sees a slow down in 1998 M&A activity
Home health industry sees a slow down in 1998 M&A activity
By MEREDITH BONNER
HHBR Editor
Mergers and acquisitions in the home health sector during 1998 were few and far between, according to a recent report by Irving Levin Associates (New Canaan, CT). Not only did the number of transactions drop significantly throughout the year, but the dollar amount of the transactions publicly announced in 1998 also declined, The Health Care M&A Report showed.
In 1998, there were 84 publicly announced transactions in the home health arena, compared to 135 in 1997, a drop of 37.8%. The purchase prices of the transactions totaled $400 million, down 75% from $1.6 billion in 1997.
The home care sector started to see a slow down in merger and acquisition activity in 2Q98. According to Irving Levin’s 2Q98 report, both in 2Q98 and 1Q98, 28 transactions took place in home health, and the numbers dropped from there. 3Q98 saw only 15 mergers and acquisitions, 50% fewer than the first two quarters of 1998. And in 4Q98, there were only 11 publicly announced transactions, a 26.7% decline.
Industry experts tell HHBR the slowing trend can be attributed to unfavorable changes to the Medicare reimbursement protocols, which they say have driven many potential acquisition candidates out of business.
When Irving Levin’s 4Q98 report was released, Stephen Monroe, a partner at Irving Levin, told HHBR that "with the new Medicare reimbursement for home health, all of a sudden it was not profitable to stay in the Medicare business, which was a big portion of the industry."
This made a lot of companies go from the black to the red, which he said is one factor in the significant drop in the number of mergers and acquisitions in the industry. Monroe also said a lot of companies did not want to make offers to buy other companies’ operations when they could go into the market and pick up patients being dropped.
In the healthcare services industry overall, the report showed, there were a total of 1,138 mergers and acquisitions, down from 1,237 in 1997. The 1998 transactions totaled $65.4 billion, a significant increase from a total purchase price of $47.3 million in 1997. The dollar value results exclude pharmaceutical, bio-tech, and medical device companies.
Despite a decline in the number of transactions in the healthcare services industry, Monroe said, there was still a significant amount of large deals.
"During 1998, there were 62 transactions with a purchase price in excess of $100 million, eight of which were more than $1 billion."
Irving Levin’s 4Q98 report was released a month ago, and, at that time, Monroe said he was optimistic the industry will eventually bounce back.
"Congress is finally seeing that . . . no one intended for home health to be put out of business from the Balanced Budget Act," he said. He added, however, that while Congress seems to be paying closer attention to the industry, the attention will not affect the M&A activity in the near term.
"It will take a while to filter into the M&A market if there are any economic changes," he said. "There will still be deals. People will still be buying and selling, but the volume will stay low for at least the first half of 1999."
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