The Health Care M&A Monthly: Health Care M&A Results for The Fourth Quarter of 2001

With a total of 184 deals announced during the fourth
quarter of 2001, M&A activity rose a slight 1% against the previous quarter’s 182 transactions. This figure, however, represents a 24% drop against the 241 deals in the fourth quarter of 2000.
For only the second time during the past five quarters (see chart on page 3), the total number of deals in the nine sectors of the health care services segment (95) exceeded the corresponding number in the four sectors of the health care technology segment (89).
The chart below breaks out the number of transactions each sector contributed to the deal volume during Q4:01. Among the services segment, the Hospital and Long-Term Care sectors proved to be the most active with 24 and 19 deals announced, respectively. Both show increases against the level of activity in Q3:01 and the corresponding year-ago quarter, Q4:00. At the bottom of the heap lie the usual suspects, Home Health, Behavioral Health and Rehabilitation, which taken together accounted for less than 4% of the quarter’s volume.
In the health care technology segment, the Biotechnology, Medical Device and Pharmaceutical sectors all posted modest declines in deal volume against the previous quarter’s levels. Despite some indications in the media that the Biotech sector might be stalling, it has overtaken the once stalwart Medical Device sector in deal volume. That is due, in part, to the falling stock prices of biotech companies, now placing many of them within reach of interested acquirers for the first time.
While deal volume tells one story, the amount of dollars spent to acquire health care businesses tells quite another. A total of $27.4 billion was expended in Q4:01 to finance the quarter’s acquisitions. The health care technology segment accounted for $22.1 billion, or 81% of the total amount, and the health care services segment accounted for the remaining $5.3 billion. The contribution of each sector to the total is presented in the graph opposite. Due to their relatively small share of the pie, the Behavioral Health, Home Health and Rehabilitation sectors have been combined here.
The fourth quarter’s figures are the highest of the year. The $27.4 billion figure represents a marked increase over Q3:01 when a total of $7.9 billion was expended, with $5.6 billion in the technology segment and $2.3 billion in the services segment. It exceeds Q2:01 when a total of $24.4 billion was spent, with $22.4 billion in the technology and $2 billion in the services segment. And it also surpasses Q1:01 when a total of $20.8 billion was spent, with $15.6 million in the technology segment and $5.2 billion in the services segment.
It does, however, represent a modest 4% decline against the amount spent in the year-ago quarter, Q4:00, when a total of $28.6 billion was expended, with $21.2 billion in the technology segment and $7.4 billion in the services segment.
Returning to Q4:01, one sector in particular stands out: Biotechnology, which alone accounted for $20.3 billion, or 74% of the quarter’s total. That, in turn, may be traced to one large deal: Amgen’s (NASDAQ: AMGN) $16 billion acquisition of Immunex (NASDAQ: IMNX), as detailed in last month’s issue. Millennium Pharmaceutical’s (NASDAQ: MLNM) $2 billion acquisition of COR Therapeutics (NASDAQ: CORR) and MedImmune’s (NASDAQ: MEDI) $1.5 billion acquisition of Aviron (NASDAQ: AVIR) also contributed to the sector’s success.
Among the services, the Managed Care sector accounted for just less than 10% of the total, thanks to $2.6 billion worth of deals. Once again, at the bottom of the pile are the Behavioral, Home Health and Rehabilitation sectors which combined saw less than $9 million spent on acquisitions. However, it should be noted that the amount spent to acquire health care services companies is roughly twice that spent in the two previous quarters, one indication that investors might find the health care industry a relatively safe harbor in a recession.