Mergers and acquisitions in Western European health care: Exploring the role of financial services organizations
Introduction
Mergers and acquisitions (M&As) define the act by which one organization (acquirer) purchases a second organization (target), thereby acquiring ownership rights over its assets, stocks, operations, business lines and products [1], [2]. M&As alter the ownership of the target firm and may transform its social mandate, financial goals and regional focus [3], [4]. In Western European health care, traditionally characterized by a non-profit rationale emphasizing social gain and by a dominant role of (quasi)-public ownership in institutional care, M&As can bring about modifications with potentially far-reaching implications.
M&As dominated the US health care scenario of the 1980s and 1990s. Whereas in 1980 only 32.1% of US hospitals were part of a larger hospital system, by 1997 73.4% were [5]. This widespread M&A wave was mainly pursued by multihospital systems through the acquisition of freestanding hospitals [6]. Increased market influence, economies of scale and scope, reduced duplication of resources, more effective training, more efficient and widespread care, cross-fertilization of competencies within multispecialty groups are amongst the reasons most often mentioned to explain the increasing integration of the sector in the past few decades [5], [6], [7].
This article investigates the evolution of M&As targeting Western European health care providers, with a specific emphasis on M&A deals as a means of penetration of private capital. We will consider the penetration of private capital in health care delivery as an important aspect of ongoing changes in Western European health care. After a century of ever-extending state involvement [8], [9], health care in Europe is now witnessing both state-led and bottom-up initiatives that may change the public–private mix in health care delivery, and in particularly strengthen the role of the private sector. Examples include the introduction of market elements in health care financing and/or provision, the broadening of the scope of private practice and for-profit medicine, the retrenchment of public financing arrangements, the closure of public hospitals or the conversion of public hospitals into more private-like entities, and, more generally, the modification of the role of state and private agents in health care [10], [11]. These and other developments suggest new room for mergers and acquisitions in Europe, as a response to the compelling need of care provision to find new sources of efficiency and capital.
This article provides empirical evidence of an unparalleled growth in M&As targeting Western European health care providers over the period 1990–2009. Our analysis focuses in particular on the share of financial service organisations1 as acquirers in these M&A deals. Examples of such M&As are the acquisition of Priory Health care in the United Kingdom in 2005 by the ABN-Amro Holding (a Dutch bank), the acquisition of the Cromwell Health care Group in 2008 by British United Provident Association (an insurance company) and the acquisition of St. George's Hospital in the United Kingdom in 1986 by Grosvenor Estate Holdings. By bringing new private equity into health care, often across national boundaries, we discuss how M&As led by financial service organisations contribute to both privatisation as well as internationalisation dynamics of Western European health care provision. In particular, we argue possible nascent trends towards cultural privatisation, through the reinforcement of business-like management style in health care, and towards cultural internationalisation, through the standardization of treatments, practices and managerial styles across countries.
The research questions guiding our investigation are: (a) what is the development of M&As targeting health care providers in Western Europe? (b) What is the share of financial service organisations in this development? (c) What is the geographical pattern of these M&As? (d) Which factors help to explain the developments found? (e) What may be the implications of these developments? Our research questions narrow the focus of this work down to the patterns, reasons and policy implications of M&As developments in health care, whilst a discussion about the financial gains associated with these deals remains beyond the scope of this research.
In the next section, we briefly discuss two different rationales for M&As drawing upon the literature on industrial organization and strategic management.
Section snippets
Reasons and risks of M&As in health care
Technically speaking, mergers are different from acquisitions. However, in the literature as well as in the dataset used in this article (see next section) they are usually taken together for the simple reason that pure mergers rarely occur [1], [2]. Merger and acquisition deals can be interpreted as implementation instruments of two main corporate-level strategies. The first strategy is integration, which aims at increasing concentration in an economic sector by grouping previously independent
Methods and data
Our analysis focuses on Western Europe, for two main reasons. Studies on M&As in health care [16] or conversions from public to private ownership [27] have mainly addressed the US, leaving the European situation fairly under-investigated. Furthermore, European states display substantial differences in terms of health systems and policy measures regulating private and public ownership of care providers. These differences may lead to a different acquisition pattern. By concentrating our analysis
Results
Fig. 1 provides a general overview of M&As targeting health care provider organisations world-wide and in Western Europe in the 1990s and 2000s.
The pattern appears to be cyclical. However, in Western Europe it has a somewhat different shape. The M&A wave that characterized the worldwide scenario in the 1990s in fact touched Western Europe only modestly. This began to change after 2000. The number of M&As peaked in 2007 with 280 deals and only slightly decreased in the last few years, probably
Towards an explanation
Our analysis highlights (a) a rise of M&As in Western Europe since 2000, (b) a rise of M&As with financial service organisations acting as acquirer in absolute terms, and (c) a dominant role of the latter type of M&As in cross-border deals.
M&As in health care led by financial services organisations are driven by a diversification rationale. There are several reasons to assume health care delivery as a profitable diversification investment for a non-healthcare acquirer. One explanation is the
Discussion and conclusions
As concluded earlier, our analysis highlights a rise of M&As in Western Europe since 2000, a rise of M&As with financial service organisations acting as acquirer in absolute terms and a dominant role of the latter type of M&As in cross-border deals. What may the implications be?
Our findings suggest a penetration of private capital into health care provision and point towards a specific form of privatisation, since M&As are market transactions that alter the target's ownership. When a financial
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