Five Healthcare Merger And Acquisition Trends Ambulatory Surgery Centers Should Know

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Mergers, acquisitions and consolidation are a pivotal part of healthcare operations, particularly at Ambulatory Surgery Centers (ASCs).

It can be helpful for independent practices to be aware of trends to compete with ASCs backed by private equity firms and large health systems and to stay up to date with where investors are interested.

Here are emerging trends in healthcare merger and acquisition activity, as laid out in an article by Ankura, a global expert services and advisory firm, and published Oct. 18 in JDSupra:

1. Expanding Outpatient Networks

Reduced cost of care, patient convenience, technology advancement and the pandemic accelerated health system interest in expanding outpatient care offerings. ASCs are experiencing an increase in demand and thus are increasingly attractive to investors.

Big names such as Nashville-based HCA Healthcare and Dallas-based United Surgical Partners International have used acquisitions to expand their outpatient care networks and are producing a growing share of overall company revenue.

2. Rise In Private Equity And Investor Interest

Nontraditional investors such as retail giants, technology companies and private equity firms are expanding their investments into healthcare services. Several physician specialties, including dermatology, orthopedics, gastroenterology, dentistry and ophthalmology, are key targets for private equity.

3. Expansion Of Care Offerings

Many healthcare groups have placed an emphasis on vertical integration — or having a role in various aspects of the care continuum. By acquiring groups along the care continuum, organizations can achieve greater coordination, improved patient outcomes and cost efficiencies.

4. Increased Use Of Digital Health Technology

Healthcare companies have been acquiring digital health startups and technology companies to accelerate innovation, increase operational efficiency and expand service offerings.

5. Health System Consolidation

Healthcare company mergers continue to play a key role in the industry, such as rural hospitals partnering with larger health systems to continue operations. Despite this, healthcare remains highly fragmented and has the potential to further consolidate, according to the article.

 

Source: Becker’s ASC Review

Senior Housing Demand Continues To Outpace New Supply

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The senior housing market appears set for a steady and ongoing recovery, with occupancy levels in 2024 expected to meet or exceed pre-pandemic levels, provided no unforeseen difficulties occur.

That is the conclusion of an analysis of 3Q 2023 data by the National Investment Center for Seniors Housing and Care (NIC).

Senior housing occupied stock is now 2.6% or 15,026 units above the pre-pandemic 1Q 2020 level, NIC found. Demand continued to outpace new supply for the ninth consecutive quarter. In primary markets, net absorption rose 1.3%, or 7,583 units, from the previous quarter and 4.3%, or 24,627 units, over the prior year. The stock of senior housing in these markets rose 0.4% from 2Q 2023, and 1.3% above the prior year, NIC stated.

However, construction remained below pre-pandemic levels, and the 11,133 units under construction in the year ended 3Q 2023 amounted to less than half the starts reported during all of 2019. A new measure of senior housing, the Absorption-to-Inventory Velocity ratio, stood at 28:10 for primary markets, which implies that for every 10 newly added units, 28 were absorbed. This indicates that the senior housing market has been able to absorb a significantly higher number of units than were added during the third quarter of 2023.

The senior housing all-occupancy rate rose to 84.4% in 3Q 2023. It remained below the 87.1% rate of 1Q 2020. However, it is expected to reach or exceed that level in 2024, NIC predicted. Risks remain in the form of economic uncertainty and the possibility of a future threat to public health.

However, current capital market conditions and the resulting lending environment, today’s relatively limited construction pipeline, and elongated delivery times of new projects suggest that supply growth is manageable and is not expected to outpace demand through 2024, the report noted.

It also pointed to differences in the all-occupancy rate between independent and assisted living facilities in primary markets. It stood at 86% for majority independent living properties, a 0.7% increase from 2Q 2023. For assisted living, it stood at 82.6%, up 0.9%. Though occupancy for both was above pandemic lows, in neither case did it reach pre-pandemic 1Q 2020 levels.

In secondary markets, though, the occupancy rate for majority assisted living facilities reached 84.3%, slightly above its 1Q 2020 level of 84.2%, indicating a full recovery explained by limited inventory growth and restrained supply pipelines. The one good thing that did emerge from the pandemic, NIC commented, is increased recognition of the value proposition that senior housing offers. It also highlighted the resilience and adaptability of senior housing operators.

 

Source: GlobeSt.

Where The Best Deals Are In Healthcare?

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Changes in interest rates and cap rates continue to exert influence on healthcare property values, and Daniel Anderson, investment sales broker in Northmarq’s Nashville office, said he’s seeing falling transaction volume and plenty of all-cash buyers.

Anderson said the healthcare real estate sector continues to be both resilient and attractive. He singles out urgent care facilities and dental properties as good buys.

All-cash buyers are leveraging reduced prices and favorable rates. And with reduced competition, this investor group is becoming more active, he said.

“There has been a decrease in sales volume across all investor categories, especially as of late,” according to Northmarq. “But despite REITs and institutional investors temporarily reducing their acquisition activities, private buyers – including those all-cash buyers I mentioned before – have really emerged as influential players in the market.

He said what makes the healthcare real estate sector attractive is high acuity, resilience against economic downturns, and indispensable importance.

“Despite the recent uptick in interest rates, we continue to see low cap rates, although they are trending upward, net lease investors across nearly all categories remain active in the market,” Anderson said. “Regarding medical offices, those greatly depend on foot traffic and synergies for sales volume, and often cost twice as much as traditional office space to build. Therefore, we see healthcare tenants become heavily reliant on the stickiness of the location and buildout of the building.”

With cap rates, he said dental properties “currently shine” with a noteworthy four-basis-point compression year-over-year, while dialysis properties saw a significant spike in cap rate expansion of 135 basis points year-over-year.

Anderson’s advice to investors is to consider the pivotal role of diversification in healthcare real estate investments.

“Meticulously evaluate factors such as tenant creditworthiness, lease durations, and geographical diversity when constructing their portfolios or evaluating new acquisitions,” Anderson said.

For 2024, Anderson said he hopes to see the buyer-seller gap in pricing expectations converge in mid-2024, which could lead to an increase in transaction volume next year and beyond.

 

Source: GlobeSt.