In partnership with PitchBook, RSM US has released its latest sector coverage: the 2016 Annual Health Care Spotlight and the Information Technology Spotlight. Packed with detailed datasets covering everything from public-to-private transactions to quarterly M&A, each report also features insights from RSM US sector experts.

Key healthcare takeaways and issues:

  • Are the longer-term trends set in place by the Affordable Care Act essentially irrevocable?
  • Median US healthcare M&A deal size hit $75 million in 4Q, signifying disparity in the market
  • More sponsor-less investors—teams with investors aligned to deploy funds only when a deal surfaces—are entering the arena

Key IT takeaways and issues:

  • M&A activity in the back half of 2016 slid to the lowest point in four years
  • According to RSM US principals, “Valuations may be becoming more realistic,” even if on a more segmented basis
  • PE groups continue to hunt for proprietary deal flow, which is proving difficult, hence a quarterly spike in the proportion of add-ons

2016 Annual Healthcare Industry Spotlight

Much uncertainty swirls around the healthcare industry, primarily driven by a lack of knowledge as to what will transpire within the political sphere with regard to the Affordable Care Act (ACA), among other important, relevant pieces of legislation. Further clouding any forecasts are the recent decisions blocking the Aetna-Humana merger and Cigna’s suit against Anthem. Regardless of the justification behind those outcomes, or if appeals go through, when taken in conjunction with political volatility, it’s crucial to take the longer term into account. Even if parts of the ACA are revised via executive orders, the trends it helped accelerate—managing costs better via increasing scale, expanding lines of revenue, consolidation amid smaller providers, etc.—are relatively inexorable.

Uncertainty in the midterm as to what will or will not occur from a legislative standpoint may impact the rate of closing deals somewhat, but the long term essentially remains unchanged.

Key highlights from 2016:

  • After steadily sliding throughout all of 2016, U.S. health care mergers and acquisitions (M&A) volume finally hit a low of 197 completed transactions in the fourth quarter. Deal value stayed steady, however, fluctuating from $44.7 billion in the first quarter of 2016 to $41.0 billion at the close of the year.
  • As the proportion of add-ons to buyouts in the United States overall has only continued to eclipse prior highs, the health care industry was hardly an exception, with a quarter-end spike to over 70 percent of all health care buyout activity to close off 2016.
  • In the wake of such a banner year as 2015 for private equity (PE)-backed exits of health care portfolio companies, 2016 saw the second-highest tally of the decade. Moreover, selling was relatively flat for three straight quarters, reflecting a steady demand for PE holdings, primarily on the part of fellow PE firms and corporate acquirers.

Healthcare Industry

Click here for the healthcare spotlight.

2016 Annual Information Technology Industry Spotlight

There’s no doubt technology trends are making for an active dealmaking environment in the technology industry. The expansion of cloud-centric offerings from formerly on-premise products and services will remain a driver of change within the industry for years to come. Early adopters are tackling more developed concerns such as compliance, different migratory patterns for different business lines—which can spark different patterns of mergers and acquisitions (M&A), as well as research and development (R&D). Meanwhile, those slower-moving enterprises that are just now examining their options when it comes to basing their products in the cloud will also potentially drive further consolidation within the information technology space going forward.

As companies implement technology, they need to proactively manage and mitigate risks. Although the move toward cloud-based offerings seems inexorable at this point, concerns around security will only become more paramount. Accordingly, those companies that can distinguish themselves further in that arena should enjoy continued premiums. Innovation in that area will also remain highly prized.

Key highlights from 2016:

  • The third quarter of 2016 was a blockbuster by multiple measures, with the total deal value hitting no less than $101 billion, even as the median transaction size soared to $102 million. The fourth quarter saw a return to more historically appropriate figures was likely, with the median transaction size of $43.8 million.
  • 2016 saw a slight increase in private equity (PE) deal volume. But even with PE firms’ interest in the technology space, if high prices persist, a gentle subduing of deal volume could be in the cards for 2017.
  • Financial buyers actually accounted for a greater percentage of take privates in 2016 than they did in 2015. Moreover, PE’s proportion of overall M&A soared to a new high during the past four years, testifying to the pressures of persistently high dry powder, as well as the differing investment theses common to PE players within the technology space nowadays.

IT Industry

Click here for the IT spotlight.

Article by PitchBook