Year-to-date through May 31, 2013, 17.2% of total deal flow through our deal origination team came from healthcare – a significant increase over 11% average of 2011 and 2012. It appears that activity is being buoyed by improving economic conditions and the pending “realities” of the implementation in 2014 of the Affordable Care Act which includes:
- Individual mandate – minimum essential coverage required
- Tax penalties for noncompliance
- Employer “pay or play” mandate
- Individual insurance exchanges
Generally speaking, significant legislative shifts greatly affect M&A activity and this reform could add as many as 30 million insured lives to the healthcare pool in 2014, drastically changing the rules in the healthcare industry which represents 17.9% of the total economy.
From a M&A perspective, it seems like those PE funds that have deep knowledge of the reimbursement, legislative, demographic and biochemical aspects of healthcare will be in the best position to understand the first, second and third level consequences (many of them unintended) of this legislation. In terms of healthcare investing, we’re betting on the specialists over the next two years – the PE funds that primarily invest in this space.