Increased federal scrutiny of healthcare mergers and acquisitions is expected to have mixed consequences for providers' credit, particularly when private equity buyers are involved, according to Fitch Ratings.
In the short term, more government intervention of deals may help improve company credit profiles because private equity acquisitions frequently increase a company's debt load and restrict cash flow, Fitch said in a report Monday. Analysts also noted the expected savings of roll-up transactions, where a number of smaller entities are combined, don't always materialize.
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However, more limits from the Federal Trade Commission could shrink the potential buyer pool for healthcare transactions, increasing refinancing risk and creating additional risk if other entities are investigated, Fitch said.
Britton Costa, a managing director at Fitch, said the increased government scrutiny creates uncertainty for buyers, sellers, shareholders and lenders. "Heretofore, this hasn't stopped the industry from carrying on, especially those that need to," Costa said in an email. "At a minimum the uncertainty should influence the timing of capital markets' transactions to fund acquisitions."
In December, the FTC updated its merger guidelines to foster competition across all industries, including healthcare. However, healthcare acquisitions are expected to increase this year as financial conditions improve.
