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Health care industry mergers on the rise

Some of the largest mergers in California and across the country are those affecting health care companies. Since 2008, the size of businesses for sale in the sector has grown annually by 13.8 percent. In 2018, the average valuation of a business for sale in the industry was $409 million. Hospital and health care mergers are a hot topic, with consolidation in the industry moving forward as smaller partners look to increase earnings.

For health care providers, size and scale can be a major boost to revenues. Larger hospitals and health systems can negotiate more favorable contracts with health insurance companies and pharmaceutical manufacturers, themselves corporate giants. This has pushed many companies in the industry to pursue mergers and acquisitions. Health insurers and outpatient care providers have also been involved in a spate of business transactions. This includes national drugstore CVS Health's purchase of major health insurer Aetna. The $69 billion deal could see tighter integration between outpatient clinic and pharmacy services provided in CVS retail outlets.

The CVS merger is not alone; UnitedHealth Group, another major insurance company, has an Optum health services business for direct care. This changing environment is pushing many hospitals to grow more rapidly. In 2018, seven deals involved smaller companies with at least $1 billion in annual revenues, including one Texas merger that produced a 68-hospital comprehensive health system. While some of these mergers were carried out by traditional for-profit companies, the majority involved nonprofit health systems.

Buying or selling a company can be a complicated process that has the ability to produce substantial profits. Companies considering a merger or acquisition can work with a business law attorney to negotiate contracts, engage in due diligence and move forward to a successful transaction.

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