3 Major Themes from Public Healthcare Firms during COVID-19 – Part 3: Mergers & Acquisitions

January 12, 2021

Contributors: Colin McDermott, Anthony Metke, Spencer Coronado

As the healthcare sector continues to operate affected by the coronavirus (“COVID-19”) pandemic, insights and experiences from the provider sector are particularly interesting.

In this three-part series, VMG Health has summarized key observations regarding the following three major themes from public healthcare firms:

Part 3: COVID-19’s impact on Mergers & Acquisitions

Providers: Experienced Progress and Strategic Opportunities

As indicated, many providers experienced volume declines and had to proactively respond to preserve operational margins during Q3 2020. Despite what some of the public sector has experienced, strategic opportunities have been created for merger & acquisition activity in the healthcare space, with numerous providers indicating large amounts of capital ready for deployment to the market relative to historical norms.

Ambulatory Care

“Going forward, our pipeline remains active with opportunities to strategically add to our network in Q4 and next year. We’re very enthusiastic about continuing our stated strategy to put muscle behind USPI to grow the platform and provide physicians and patients with more convenient options for care and to continue to evaluate our hospital portfolio for fit and make adjustments in that portfolio as we deem appropriate.”

Ronald A. Rittenmeyer, Executive Chairman & CEO – Tenet Healthcare Q3 2020 Earnings Call Transcript

Acute Care

“Our hospitals across the board, in Europe, Australia and here in the U.S. are doing very well. And every one of them, certainly all of the big ones are looking for opportunities and have opportunities to grow.

From an opportunity standpoint with systems, we continue to see a lot of interest in the for profits, buying some of the not-for-profits entities. We see a lot of continued interest, particularly post COVID — post nightmare COVID, I guess, from the not-for-profits that really need to have more than just one facility that are willing to sell at this particular time.”

Edward K. Aldag, Founder, Chairman, President & CEO – Medical Properties Trust, Inc. Q3 2020 Earnings Call Transcript

“Our development activities have continued throughout the year, almost at the same clip as they had pre-COVID. That said, a lot of the deals aren’t closing right now. There’s a lot of conversations. You read a lot of articles about systems all over the country that are struggling. But most or many of them are not at the point where they’re making determinations to change from their current situation to something new.

That said, I do think we’re laying groundwork for the future, near and longer term, where something like that could happen, either within current acute care markets, which we’re most familiar with, or other markets, either markets where we have behavioral presence but not yet acute care or markets that we don’t play in right now, but we track for different reasons, mostly because there’s opportunities there, possible future opportunities. So I do think that, that might happen, but we’re not seeing that happen right at this time.”

Marc D. Miller, President & Director – Universal Health Services Q3 2020 Earnings Call Transcript

Post-Acute Care

“On home health, as Mark [Tarr] mentioned in his comments, we have seen a pickup in the acquisition pipeline. There’s some activity that’s out there right now. It’s more heavily oriented toward hospice than it is home health. But this $50 million to $100 million reflects perhaps the degree of optimism that we’re going to be able to get a deal or two done in the fourth quarter.”

Douglas Coltharp, Executive VP & CFO – Encompass Health Corporation Q3 2020 Earnings Call Transcript

“We have also seen our M&A activity materially increase in recent months. After completing the joint venture with Orlando Health on August 1, we finalized the joint venture with the University Health Care System for home health and hospice in Georgia and South Carolina, a joint venture with Northeast Georgia Health System for home health in Georgia and expanded an existing joint venture with CHRISTUS Health to add a hospice location in Texas. We also completed the acquisition of a hospice provider in Aurora, Colorado that will operate in conjunction with our existing home health location in that market. We believe that this recent activity will continue to gain momentum with increased M&A and continued strong organic growth trends in Q4 and 2021 as we anticipate an historic consolidation opportunity in home health and seeing an increasing number of hospice opportunities in our pipeline.”

Keith G. Myers, Co-Founder, CEO & Chairman – LHC Group Q3 2020 Earnings Call Transcript

“We’re going into our budgeting process for next year. Part of that goes towards us discussing not only our internal metrics, but other markets that we may be very interested in entering, and it gets down to what’s the best entrant strategy, whether that’s de novo or whether that is through an acquisition, but as other providers have alluded to, valuations on those acquisitions in the hospice market given the appetite continue to be at all-time highs. And so we really have to be fiscally responsible around whether those things make sense.”

Nicholas Michael Westfall, CEO & President – Chemed Corporation Q3 2020 Earnings Call Transcript


“I think that there’s two facets to answer your question. As far as our competitors are concerned, I think that the impact of COVID will be something that we’ll see more of in 2021 as some of our competitors who have not had the financial resources that we have, as well as potentially the looming cuts in Medicare, force them to consider the viability of their own businesses. So I think the liquidity position that we’re in has put us in a good position to potentially take benefit from that.

The pipeline has always been good here. Generally speaking, we don’t go knocking on doors looking for acquisitions. We want motivated sellers, if you will, or opportunities that come our way. And we expect that those will increase in 2021, particularly if the Medicare reimbursement cuts are implemented. I think it’s just going to make it that much more difficult for the traditional mom-and-pop, I mean smaller operator to be viable. So we will remain disciplined. Part of our growth strategy, since we’ve achieved leverage ratios that we’re very pleased with and hope to even lower. We need to continue to be disciplined about how we do our acquisitions to be certain that the company that does not leverage itself higher than what we believe are comfortable levels.”

Howard G. Berger, Chairman, President, CEO & Treasurer – RadNet Q3 2020 Earnings Call Transcript

Clinical Laboratories

“As a reminder, the 5 elements of our strategy to accelerate our — to grow more than 2% per year through strategically aligned accretive acquisitions; expand relationships with health plans and hospital health systems.”

Stephen H. Rusckowski, Chairman, President & CEO – Quest Diagnostics

“We have a very strong M&A pipeline…. I would prefer to do M&A, because when we do it, we’re highly confident that that’s a better return for our shareholders, but we do have very strict criteria. We have to find deals that meet those criteria. So I’m optimistic that we will deploy a chunk of that for M&A.

Our M&A pipeline remains strong, given the many challenges that hospitals will face we expect many more to be open to discussions about how Quest can help them achieve their last strategy. At the same time, we know that smaller regional laboratories have had their own challenges. This could also produce more opportunity for tuck-in acquisitions. If anything, the pandemic could be in an additional catalyst to help drive immunity consolidation. Some transactions in the pipeline that were paused because of the pandemic are being revisited based on the new realities that this health care system is experiencing at the start.”

Mark J. Guinan, Executive VP & CFO – Quest Diagnostics

Payors: Physician Group Focus

With the ongoing nature of the COVID-19 pandemic, payors are poised to make strategic acquisitions and purchases in specific geographic with size-related metrics in mind. UnitedHealth Group (through OptumHealth) foresees acquisitions of all sized physician groups based upon alignment with their strengths:

“The other piece I’d say […], around your question about physician recruitment is we have seen continued robust interest in both small, tuck-in acquisitions as well as medium and large physician groups who are attracted to both stability, the physician leadership and the evidence-based approach that we’ve embraced in OptumCare.”

Wyatt W. Decker, Chief Executive Officer – OptumHealth (UnitedHealth Group) Q3 2020 Earnings Call Transcript

Watch the Market for Activity

As operations improved throughout Q3 across most sectors, many operators are looking towards opportunistic acquisitions into 2021. Both payors and providers indicate an optimistic outlook given adequate capital, but have stressed the importance of selective acquisitions that align with long-term goals. While acute care provider Tenet is shifting capital deployment focus towards their ambulatory care division, USPI, post-acute care providers including Encompass Health and Chemed Corporation indicate the hospice market as the most active at the moment, as evidenced by LHC Group’s Q3 2020 activity across the country.