Healthcare Consulting Insights: Healthcare Provider Consulting M&A

By Nicodemo Esposito, Managing Director and Ramone Param, Director

M&A activity is strong for specialized operational management consulting businesses that provide innovative, data-driven process improvement and cost reduction solutions

We continue to receive feedback from the most prolific buyers of knowledge-intensive services firms that expertise in helping healthcare providers with process improvement and operational efficiency is of high strategic importance for growth. A confluence of demographic, economic and regulatory drivers are forcing providers to improve care standards and enable efficiencies. Providers are also increasingly being compelled to invest in new digital technologies that can create data-driven productivity improvements and competitive advantages. These industry trends are driving strong demand and premium valuations for well-positioned operational consulting firms working with healthcare providers. Equiteq experienced this demand first hand in its sale of c3/consulting to Ankura. c3 has a track record of providing management consulting services to a variety of leading healthcare organizations in the US.

What are the drivers of growth in this space?        

  • Increasing healthcare spending – Healthcare expenditure is rising globally. Healthcare consultants are developing and implementing strategies that address the increasing pressure on providers to meet this growing demand. Spending growth is being driven by population increases and ageing, the expansion of products and services in emerging markets, as well as technological and scientific advances. In the US, the ageing population is leading to a rise in Medicare and Medicaid spending. The US Centers for Medicare and Medicaid Services (CMS) is projecting that national healthcare spending will rise on average 5.5% per annum from 2017 to 2026.
  • Regulatory upheaval – In the US we are seeing an uncertain future of the Affordable Care Act (ACA or Obamacare). The recent tax reform law repealed the ACA’s individual mandate, which required all Americans to purchase health coverage or be subjected to a fine. There are further reforms expected, including the recently announced plan to make drug prices more affordable. In the UK, the National Health Service (NHS) faces a variety of issues following years of tight public spending. Increased demands from an ageing population and calls for more modern personalized care options could drive major structural changes to the health system. This will be compounded further with the regulatory and structural overhauls as part of Brexit. Regulatory and change management consulting firms are likely to benefit from working with clients that need advice on understanding and implementing the required structural changes to their organization.
  • Profit margin pressuresThere are a variety of pressures squeezing margins of providers and encouraging streamlining initiatives led by consulting firms. Declines in real reimbursement rates are a major contributor to falling margins for non-profit healthcare systems in the US. This is coupled with the continued growth in staffing and digital expenses. Cost pressure is driving consolidation amongst healthcare providers, which creates a range of integration issues requiring the need of specialist consulting services.
  • Shift to value-based care – There is a continued shift from fee-for-service to value-based care models of healthcare reimbursement in the US and Europe. Payer driven value-based purchasing is driving a need for providers and life sciences to improve the provision of cost savings from new therapies. Patients are also becoming more discerning consumers of healthcare, with a desire to become more involved in the treatment process. These changes in care models and patient expectations are driving demand from providers for advisory solutions involving recommended investments in new technologies and processes that enhance services and reduce costs.
  • Digital advancements and data analytics – Across the globe, consulting firms are benefiting from the potential to help clients realize competitive advantages by using rapidly evolving technologies and the plethora of data that they create. Disruptive technologies include connected devices embedded with the latest artificial intelligence and advanced data analytics solutions that enable data across the organization to be mined for insights. In the healthcare sector, these technologies are offering exciting ways for providers, payers and life sciences companies to gain competitive advantage by utilizing these technologies effectively.

Robust acquisition interest from strategic and financial buyers

There has been a number of healthcare consulting acquisitions by both strategic and financial buyers over the past 18 months, highlighting the growth prospects and overall attractiveness of the sector. Broad healthcare services and technology firms are moving up the value chain by acquiring management consulting capabilities that act as a tip of spear to sell adjacent services. Large management consulting firms are adding depth and scale to existing healthcare practices, while private equity firms are funding sizable platforms with proven management teams to capitalize on the strong industry fundamentals and growth potential. Furthermore, the leading accounting networks and marketing communication firms with healthcare expertise regard business advisory as the key component to future success and an important competitive differentiator as they look to broaden their capabilities.

There is strong global appetite to acquire high-quality consulting capabilities focused on serving healthcare providers. If you are interested in capitalizing on this demand or would like to discuss your strategic options for growth, please get in touch.

Equiteq has executed seven healthcare consulting transactions and over 15 strategic advisory engagements in the sector. More than 30 of our bankers and consultants have specific healthcare and/or life sciences advisory and/or M&A deal experience.

This review precedes the upcoming launch of our inaugural Healthcare & Life Sciences Consulting M&A report. For more information sign up to Equiteq Edge, our content platform to help owners of knowledge-intensive services firms prepare for sale and sell their business.

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