What are some drivers for healthcare M&As?

The global healthcare industry, boasting a staggering valuation of over $9 trillion, has witnessed an unprecedented upsurge in Mergers and Acquisitions (M&A) in recent years. In the United States, healthcare M&A transactions amounted to a remarkable $315 billion in 2020. The aim of this article is to elucidate the five principal drivers of healthcare M&A: Demographic Shifts, Disease Prevalence, Technological Advancements, Availability of Talent, and Shifts in Policies.

1. Demographic Shifts

• Growing Population: A Clarion Call for Scalable Healthcare
  • As we cast our gaze towards the horizon of 2050, the global population slated to touch an awe-inspiring 9.7 billion (United Nations, 2019). This burgeoning demographic compels us to confront an inexorable truth: the necessity for scalable healthcare solutions has never been more acute. Mergers and Acquisitions (M&A) will serve as strategic levers for healthcare providers eyeing geographical and capability expansions.
• Aging Population: Greater demand for specialized healthcare services
  • The global trend towards an aging population is unmistakable, with projections indicating that individuals over 60 years old is set to double to 2.1 billion by 2050 (World Health Organization, 2018). It imparts an immediate and critical obligation upon the healthcare industry to deliver specialised services, presenting substantial M&A opportunities for providers to enhance their targeted service offerings.

2. Disease Prevalence

• COVID-19: Pandemic-induced Treatment Backlogs
  • The Centers for Disease Control and Prevention (CDC) survey reveals that approximately 41% of U.S. adults had delayed or avoided medical care as of June 2020 due to COVID-19 concerns. Consequently, this deferred healthcare activity has led to a notable backlog of medical treatments, necessitating M&A activities as a potent means to manage this glut of healthcare needs.
• Rising Incidence of Chronic and Infectious Diseases
  • The rising prevalence of diseases such as cancer, which affected over 19 million people globally in 2020, is a key driver for M&A activity in the healthcare sector (American Cancer Society, 2021).
• The ascendance of other chronic diseases, such as diabetes, Alzheimer's, and Parkinson's, amplifies the urgency for strategic corporate alliances. For example, the lifestyle and environmental factors like rising obesity rates. They've contributed to a surge in type 2 diabetes incidences, thus fueling investments n specialized R&D for targeted treatments (CDC, 2020).

3. Technological Advancements

• Telemedicine: Bridging the Gap to the Remote and Inaccessible
  • Telemedicine's evolution is redefining healthcare delivery by offering remote services through video conferencing and mobile applications. Industry frontrunners such as Teladoc and Amwell are leveraging M&A activities to fortify their positions in telehealth sector.
  • The COVID-19 pandemic has a seismic impact on healthcare paradigms. Reports from PwC and McKinsey project a remarkable upswing in telemedicine, which is predicted to scale up to an astonishing $250 billion by 2025.
• AI and Machine Learning: Streamline diagnosis and treatment
  • Artificial intelligence (AI) and machine learning are another focal point of technological innovation driving M&A activities in healthcare. AI applications aim to streamline healthcare processes and enhance patient outcomes, as substantiated by Microsoft's $19.7 billion acquisition of healthcare AI company Nuance. Machine learning algorithms analyze large datasets to inform better healthcare decisions. Healthcare conglomerates like Optum and Cigna are integrating these technologies to improve healthcare outcomes and lower costs.
  • Salveen Richter, the lead analyst at Goldman Sachs Research, cogently posits that the future of healthcare will be markedly shaped by digital transformations, specifically through the integration of machine learning and Artificial Intelligence (AI).
  • Reports by Deloitte and the Mergermarket Group indicate a healthy number of M&A deals focusing on AI and machine learning in healthcare, underlining the PwC data that earmarked $563 billion in total M&A deal value in the healthcare sector for 2020.

4. Availability of Talent

• Human Capital: The Bedrock of M&A Success
  • KPMG studies show that 83% of M&As require changes in workforce strategy, highlighting the need for domain-specific (ie biomedical) knowledge in talent integration.

5. Policies

• Incentives: The Tailwinds for M&A
  • Legislation like the Affordable Care Act (ACA) has turbocharged M&A activities in healthcare, as reflected in a 50% uptick in hospital mergers post-ACA (Health Affairs, 2017).
• Regulations: Navigating the Minefield
  • Contrastingly, antitrust regulations loom as potential tripwires, evidenced by the Federal Trade Commission’s (FTC) scrupulous oversight that has thwarted multiple healthcare mergers over the last decade.

Conclusion

• The factors outlined a thrilling new era in Mergers and Acquisitions, as Machine Learning and AI pave the wave for a digital transformation in healthcare industry.