Greenberg Advisors, an investment bank in revenue cycle management (RCM) and healthcare IT (HCIT), recently released its 2021 Mergers and Acquisitions (M&A) Update, which describes investment and M&A activity in the RCM and HCIT sectors.
Three key takeaways in the report were:
• There was record-shattering M&A activity in healthcare exceeded $27 billion across 246 transactions.
• 86% of the transactions involved sellers with up to $50 million in revenue.
• There was increased appetite for targets with physician end-clients.
Among the reasons for the high level of activity, Greenberg Advisors said buyer interest was fueled by the abundance of and low-cost of capital combined with a multitude of opportunities created by the systemic and technological evolution occurring in the healthcare industry. Sellers further contributed given their concerns of a possible capital gains tax hike and the highly attractive valuations being placed on well-run businesses.
“2021 was a spectacular year for so many of our clients and for the market overall. Based on what we’re hearing from investors, combined with the velocity of capital pouring into the market, we expect this pace to continue well into 2022,” explained Brian Greenberg, CEO of Greenberg Advisors.
He said 2021 was a critical year, because of concerns over COVID and how it would impact investment activity. “The market bounced back definitively, showing its resilience and proving that the underlying forces that drive investments are alive and well in RCM and HCIT,” he added.
Never before have we seen so many headlines with "billion" in the title, the Greenberg Advisors report states. "From the pending acquisitions of Cerner and Athenahealth, to HCIT companies receiving investments at valuations well over $1 billion. They also reflect the bullish sentiment for the sector."
In recent years, buyers have shown a propensity for acquiring RCM and HCIT firms focused on the hospital market. Greenberg Advisors said if 2021 activity is a signal for the future, then we may be in the midst of a pivot toward the physician market. During the period 2018–2020, 74% of transactions involved sellers with hospital clients. During that timeframe, acquisitions of RCM and HCIT firms that serviced the hospital market constituted 31% more activity than physician markets. Greenberg Advisors said that gap shrank to just 10% in 2021, with 66% of transactions involving hospital end-clients, and 56% involving physician end-clients.
The demand for hospital relationships will never go away, but those relationships are difficult to build and maintain given high turnover among hospital leadership, long sales cycles, and frequent hospital consolidation, Greenberg Advisors contend. They said this has fueled the level of buyer competition and the lower availability of attractive assets in the hospital market seems to be guiding more buyers to the physician market as a source of inorganic growth.