News Column

Fitch: Consolidation of Healthcare Providers Raising Questions for Investors on Credit Risks

July 29, 2014



NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: Lateral Consolidation of Healthcare Providers (Is the Whole Greater than the Sum of the Parts?)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753102

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 Megan Neuberger, Senior Director, Fitch Ratings. 'In any transaction, however, investors need to ask whether the whole is greater than the sum of its parts given the credit risks.'

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'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Megan Neuberger

Senior Director

+1-212-908-0501

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Media Relations:

Brian Bertsch, +1-212-908-0549 (New York)

brian.bertsch@fitchratings.com


Source: Fitch Ratings


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