Healthcare Reform Ruling to Spur M&A (Koleman Karleski)

The demand for healthcare services and information technology will be the main drivers for deal activity

By TAMIKA CODY, Mergers & Acquisitions Magazine    June 28, 2012

On the morning of June 28, 2012, the U.S. Supreme Court ruled in favor of The Patient Protection and Affordable Care Act, 5:4.  Observers say the decision to uphold the Act, which was initially signed into law on March 23, 2010, will spark healthcare M&A activity.

Several million Americans will need to have some basic healthcare insurance and coverage. This will only lead to an increase in demand for healthcare services, says Paul Hastings’ healthcare senior associate, Paul Gomez. “This can only have a positive effect on healthcare merger and acquisition activity.”

Venture capital firm Chrysalis Ventures holds several healthcare assets in its portfolio. Koleman Karleski, a managing director at the firm, points out that healthcare M&A activity took off two years ago when the law initially passed. “Anytime there are regulatory changes with economic implications, they affect organizations differently. Ultimately, the strong swallow the weak in big industries like healthcare,” says Karleski.

Most of the consolidation is taking place among providers. “You are seeing pretty direct M&A activity associated with reform because it changes the economic playing field and the type of payment changes that are coming through care organizations,” says Karleski. “That’s one big bucket of M&A that’s already been unfolding and will continue as this is implemented.

Health insurance companies are also shifting their focus to other types of business activity, particularly healthcare information technology (IT). Aetna Inc. (NYSE: AET) and UnitedHealth Group Inc. (NYSE: UNH) both made enormous bets on healthcare IT and made large acquisitions over the years as they are trying to transform their own businesses and differentiate themselves from risk based-insurance services, says Karleski. “You are going to see a lot of M&A activity associated with these companies pivoting very quickly to buying new platforms to help drive their new strategies in healthcare IT.”