The ongoing consolidation of U.S. healthcare providers is bringing benefits for some acquirers but also posing unique credit challenges for investors, according to a Fitch Ratings report.
A dynamic operating environment is encouraging some healthcare management teams to look beyond relatively low-risk horizontal consolidation in favor of transactions that bring different care-delivery verticals under common ownership. Although these transactions might offer less benefit in terms cost synergies, revenue synergies may be gained by treating a single patient through a broader spectrum of care. Perhaps most importantly, Fitch notes that diversified healthcare providers may realize a first-mover advantage under value-based payment schemes.
'Scale in healthcare delivery brings clear financial benefits to manage secular headwinds to organic growth and profit margins,' said
Integrating an acquisition in an adjacent care-delivery vertical is complicated and the risk should be tempered by a strong strategic rationale supporting a diversified business model. The credit implications of any acquisition partly depend on Fitch's assumptions regarding the contribution of financial synergies to pro forma EBITDA. Fitch typically takes a more conservative approach to the modeling of presumed revenue than cost synergies associated with a merger.
The full report 'Lateral Consolidation of Healthcare Providers' is available at 'www.fitchratings.com.' The report provides commentary and analysis of several recent large transactions.
Additional information is available at 'www.fitchratings.com'.
Source: Fitch Ratings
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