Becker's Hospital Review

Transaction & Valuation Issues 43 Q3 Healthcare Merger and Acquisition Activity Up 20% By Helen Adamopoulos  H ealthcare merger and acquisition activity increased by almost 20 percent in the third quarter of 2013 compared with the same quarter a year ago, according to a Health Care M&A News report. There were 267 deals announced during the third quarter, up from 223 deals in the same quarter of 2012, according to the report. It was also a 15.6 percent increase from 231 deals in the second quarter of this year. Deal value dropped 4.2 percent from $53 billion in the second quarter of 2013 to $50.8 billion in the third. However, value was up year-over-year by 35.1 percent from $37.6 billion in 2012. A total of 24 hospital deals were announced in the third quarter, up 20 percent from 20 deals last quarter and 33.3 percent from 18 deals in the third quarter of 2012. It was an eventful quarter for the hospital industry, with Dallas-based Tenet Healthcare Corp.'s now completed $4.3 billion acquisition of Nashville, Tenn.-based Vanguard Health Systems and Franklin, Tenn.-based Community Health Systems' $7.6 billion bid for Naples, Fla.based Health Management Associates in the spotlight. Although there likely won't be any more mega-mergers in the near future, deal volume in the sector will probably remain elevated as standalone hospitals join larger healthcare organizations to stay afloat, according to the report. n Moody's: 5 Key For-Profit Hospital Consolidation Trends By Helen Adamopoulos  T he for-profit hospital world has experienced significant consolidation activity recently. In October, Dallas-based Tenet Healthcare Corp. completed its acquisition of Nashville, Tenn.-based Vanguard Health Systems, a transaction valued at $4.3 billion. Additionally, Franklin, Tenn.-based Community Health Systems is in the process of acquiring Naples, Fla.-based Health Management Associates, a merger worth an estimated $7.6 billion. As hospital operators prepare for the implementation of major healthcare reform provisions, what lies ahead for hospital merger and acquisition activity? A new report from Moody's Investors Service Lead Analyst Dean Diaz includes the following key takeaways concerning the future of for-profit hospital consolidation. 1. Consolidation will accelerate. Acquisition activity will likely continue at a high rate as for-profit hospitals prepare for major aspects of healthcare reform, according to the report. 2. Continued consolidation will give providers more bargaining power with payers.  Commercial health insurers have merged, forming large entities that can put pressure on healthcare providers in reimbursement negotiations. Continued hospital consolidation will make the balance of power more equal, according to the report. 3. Upcoming reimbursement cuts will intensify the need for scale and efficiency.  Moody's predicts the shift to valuebased payments will drive providers to leverage administrative costs, investments in infrastructure and purchasing power. 4. Hospitals will aim to diversify to control costs.  As providers shoulder more risk concerning the cost of care, hospitals will look to own or control as many points of care as possible, such as surgery centers, physician offices and imaging centers. Moody's expects for-profit operators to pursue acquisitions to grow these service lines. 5. Ultimately, healthcare will remain a local business. Hospital operators' local market presence will still drive their ability to increase volumes, attract physicians and negotiate with payers, according to Moody's. n Tenet Closes on $4.3B Vanguard Acquisition By Bob Herman D allas-based Tenet Healthcare Corp. completed  its merger with Nashville, Tenn.-based Vanguard Health Systems Oct. 1, receiving all regulatory approval for the deal. Tenet paid $1.8 billion in cash, or $21 per share of Vanguard stock, and agreed to assume $2.5 billion of Vanguard's debt, giving the transaction a total value of $4.3 billion. Tenet, which will maintain headquarters in Dallas, now owns and operates 77 acute-care hospitals, 173 ambulatory surgery centers and outpatient facilities and five health plans. It also could add several more hospitals into its system, as Vanguard has been working on a few hospital acquisitions in Connecticut, such as Eastern Connecticut Health Network in Manchester. Tenet, which now has more than 100,000 employees, also oversees six accountable care organizations. Tenet currently stands as second-largest for-profit hospital chain in terms of revenue and the third-largest in number of hospitals owned. Further, Tenet gained market share in areas it previously had no footprint, such as Chicago, Detroit, San Antonio, Phoenix and New England — giving it the number one or two position in 19 major markets. n

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