Universal Health Services, Inc., one of the nation’s largest hospital companies, announced Monday that it has reached a definitive agreement to acquire Ascend Health Corporation for $500 million in cash. Including the assumption of $17 million in Ascend net debt, the total transaction consideration is approximately $517 million.
“UHS's acquisition of Ascend is a strategic transaction that enhances our industry-leading presence in the behavioral healthcare services sector," UHS said in a press release announcing the acquisition.
Ascend, the press release noted, is the largest private psychiatric hospital provider in the country with nine owned or leased freestanding psychiatric inpatient facilities located in five states, including Texas, Arizona, Utah, Oregon and Washington.
The Ascend acquisition builds upon UHS’ $3.1 billion purchase of Psychiatric Solutions, Inc. in November 2010.
M&A experts say the Ascend acquisition continues the current trend being seen in the healthcare sector, which has experienced record merger and acquisition deal volume in 2012.
“I believe that we will continue to see significant M&A activity in the middle market in healthcare, such as UHS's acquisition of Ascend,” said Sanford Steever, editor of The Health Care M&A Report, published by Irving Levin Associates. “I should add, however, that we have had a strong healthcare M&A market for several years now. In May, for example, 70 deals were announced in 13 sectors of healthcare worth a combined total of $12.3 billion.”
“There is an uptake this year and certainly there was last year in healthcare acquisitions,” agreed Jay Levine, partner at Birmingham, Ala.-based law firm Bradley Arant Boult Cummings, who said the need for providers to establish accountable care organizations in order to participate in Medicare Shared Savings Plans is a major factor driving M&A.
The objective of providers is to try to “integrate the delivery of care across a number of different disciplines and be able to deliver a higher quality of care for lower costs,” said Levine. “You do need a certain critical mass of providers to deliver care and as a result there are going to be mergers, acquisitions, alliances, so that you can set yourself up to become – this is almost an antiquated term – an integrated delivery system.”
The experts expect the growth in healthcare M&A to continue no matter the outcome when the Supreme Court rules on health reform legislation later this month.
“Many deals are being undertaken today for the same reasons they have been for several years: to achieve economies of scale, to capture larger market share, to spread risk over a larger provider base,” said Steever. “More recently, healthcare services have been acquiring businesses to create affordable care organizations to reduce costs and improve outcomes. My sense is that, regardless of the legal challenge to the Affordable Care Act, many providers see ACOs as a good way to reduce costs and improve outcomes and will continue to acquire the building blocks of these organizations.”
Levine also believes M&A will continue at its current rapid-fire pace despite any changes that may occur to the health reform law.
“I don’t think these acquisitions and alliances are going to be slowed down much because, frankly, the impetus is there,” said Levine. “Everyone understands, and I think most people agree, that better integrated and better coordinated care is needed. That premise, I don’t think, is up for debate too much.”