Vertical and Horizontal Acquisitions in Healthcare M&A

M&A activity is the primary source of growth in the healthcare industry. In healthcare M&A, Vertical and Horizontal Acquisitions are key strategies to facilitate growth. A Vertical Acquisition occurs when a hospital acquires a company that provides a service, while a Horizontal Acquisition takes place when a hospital acquires another hospital.[1] Horizontal and Vertical Acquisitions are not mutually exclusive. Healthcare organizations routinely enter into both types of transactions to facilitate growth.

Vertical & Horizontal Acquisitions

Horizontal acquisitions in the healthcare space involve the acquisition of another healthcare organization that is in the same market. For example, a hospital acquires its competing hospital, and a pharmaceutical company acquires another pharmaceutical company. The main benefits of this form of acquisition are that it eliminates market competition and increases your market reach automatically.[2] 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, joining entities across the healthcare market allows improvements in the quality and cost efficiency of care. Which in turn are bestowed upon the patients/customers. Quality of care and cost of care is the primary concern in the healthcare industry. Vertical acquisitions allow for the development of consolidated payment plans and streamlined treatment which benefits the customer.

In conclusion, the decision of whether to pursue a vertical or horizontal acquisition in healthcare M&A is a crucial one that should be made based on the specific needs and goals of your organization. Both types of acquisitions have their own set of advantages and disadvantages. It is important to carefully weigh these factors before making a decision. By understanding the differences between vertical and horizontal acquisitions, healthcare companies can make more informed decisions about their M&A strategy. It is important to keep in mind that both strategies can be powerful tools for growth, but it is necessary to carefully analyze the pros and cons and choose the strategy that is the best fit for your organization.

[1] https://www.investopedia.com/ask/answers/051315/what-difference-between-horizontal-integration-and-vertical-integration.asp