M&A activity is the primary source for growth in the healthcare industry. The two types of acquisitions which facilitate growth are Horizontal Acquisitions when a hospital acquires another hospital and Vertical Acquisitions when a hospital acquires an ambulance company or other company which provides a service to the hospital. Horizontal and Vertical Acquisitions are not mutually exclusive. Healthcare organizations routinely enter into both types of transaction to facilitate growth.
Horizontal acquisitions in the healthcare space involve the acquisition of another healthcare organization which is in the same market, i.e. Hospital acquires it’s competing hospital and a pharmaceutical company acquiring another pharmaceutical company. The main benefits of this form of acquisition are that it eliminates market competition and increases your market reach automatically. The newly combined power and reach give the company a competitive edge over other competitors. However, a downside is that you also acquire the risk associated with the acquired healthcare organization which may decrease its value.
Vertical acquisitions in the healthcare space involve the acquisition of a healthcare organization in a different market. As a larger healthcare enterprise, the acquiring company has access to multiple markets to diversify its portfolio and increase revenue streams. Also, by joining entities across the healthcare market, this allows improvements in quality and cost efficiency of care, which in turn are bestowed upon the patients/customers. Quality of care and cost of care are the primary concern in the healthcare industry. Vertical acquisitions allow for the development of consolidated payment plans and streamlined treatment which benefits the customer.