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140+ revenue cycle M&As completed in 2018 — 3 insights on what lies ahead

Driven by provider consolidation, there's been a growing number of mergers and acquisitions involving revenue cycle businesses, according to Brian Greenberg CEO of Greenberg Advisors.

Mr. Greenberg told Becker's ASC Review how revenue cycle transactions will likely play out in the months ahead.

Note: Responses were lightly edited for length and style.

Question: What factors are driving mergers and acquisitions in the healthcare revenue cycle space?

Brian Greenberg: Consolidation among hospitals, health systems and physician groups is a key factor. As a result of the growth of these providers, their vendors need to remain capable of handling their business. For some, this means gaining scale or capabilities through acquisition, and for others, it signals a good time to sell. Either way, the market right now is just so rich with opportunity for buyers and sellers. A second driver of recent activity is the complexity of the healthcare system. For years, this has continuously created gaps for new services and technologies to address, which leads to exciting new businesses. And, of course, relatively inexpensive capital is another important driver, as it enables buyers to price transactions more aggressively than they otherwise might, making it possible to meet the needs of more sellers and complete more transactions. Lastly, the revenue cycle management market has historically been very fragmented, comprised of many regional vendors. Large strategics and financial buyers clearly recognize that acquiring these smaller firms can play a vital role in their growth strategy.

Q: What kind of M&A activity are you seeing in the RCM space?

BG: The pace remains brisk for M&A in the RCM sector. Our data reflects that over 140 deals were completed in 2018, representing $11.1 billion in deal value, and our M&A Update contains considerably more information regarding these trends. Transactions have involved companies offering a range of services including patient access functions, denials management, analytics, coding and billing, patient receivables management, and consulting. Some of the acquired companies were very much specialists in their fields, whereas others had multiple offerings. Buyers view those matters differently, depending on the type of organization they're trying to build. We see the activity continuing, given the market dynamics and the heightened M&A awareness that exists in the market. Our relationships with owners indicate that many more deals will be coming to market in the next 12 months. And the conversations we have with strategic and financial investors point to plenty of appetite for those transactions.

Q: What are the biggest challenges RCM companies face during M&A transactions?

BG: For RCM-specific challenges, I'd say a critical challenge is creating accurate forecasts upon which buyers can rely. The yearslong sales cycle in healthcare doesn't help. So much can happen on the way to signing a new client. And even after they've signed, they still need to be boarded, which can take many more months in some cases. As a result of such unexpected delays, buyers can lose faith in the forecasts and in the worst of cases, lose interest in the transaction. Another challenge can be educating buyers on the nuances of certain RCM businesses and the market as a whole. RCM is a unique and multifaceted sector that requires newcomers to learn two essentially different industries (the healthcare industry and an outsourced services or technology industry) and how they interact. One of the most difficult aspects in RCM for new investors to grasp is the dynamic of each client relationship. The web of relationships that RCM vendors have with their clients is complicated by high turnover of executive leaders at hospitals and the consolidation of physician groups, among other things, which at first can seem confusing and cause investors to question the strength of the relationships.

Interested in participating in future Becker's Q&As? Email Angie Stewart: astewart@beckershealthcare.com.

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