The Health Care M&A Monthly: Health Care M&A Results for The First Quarter of 2005

Merger and acquisition activity in the health care industry reached its highest level in two years during the first quarter of 2005, posting a total of 248 deals. This figure represents a 15% increase over the previous quarter’s 216 deals and a 19% increase over the year-ago quarter’s 209 transactions. The last time volume was higher occurred in Q4:02, when a total of 286 transactions were posted.
The contribution of each sector to Q1:05’s deal volume appears below, where each sector is assigned to either the health care services or the health care technology segment.
With 43 deals, Medical Devices finally overtook Pharmaceuticals as the single most active sector in terms of deal volume. Both the Biotechnology and the e-Health sectors scored notable gains over both the previous and the year-ago quarters. This suggests that as both of these sectors move toward overall profitability—the biotech industry, as a whole, could be profitable within four years— investors may be positioning themselves by buying companies they perceive to be bargains in the current market. In any event, the three most active sectors in Q1:05, all of them in the technology segment, accounted for 46% of the quarter’s total deal volume.
Among services, the Long-Term Care sector enjoyed the highest volume, while the Hospital sector took a hit, slipping 47% from the previous quarter. It appears that the appetite for buying hospitals is moderating as the market continues to digest all the facilities that Tenet Healthcare Corp. (NYSE: THC) sold off over the past two years.
What They Paid
Based on prices revealed to date, a total of $34.8 billion was committed to finance Q1:05’s 248 transactions. This represents a 33% drop from the previous quarter’s $51.7 billion and a 63% drop from Q1:04’s $92.9 billion. In perspective, however, it should be recalled that Q1:04’s results were skewed upwards by the $65.5 billion merger that gave rise to sanofi-aventis (NYSE: SNY).
Though the health care technology segment accounted for 54% of the deal volume in Q1:05, it captured 87% of the funds spent on health care M&A. The dollar amount spent in each sector is tabulated above while the percentage that each sector contributed to the overall total appears in the chart opposite.
Six billion-dollar deals were announced in Q1:05, totaling $24.6 billion and accounting for 71% of the quarter’s total committed funds. Three were in Pharmaceuticals, two in Medical Devices and one in Specialty Pharmacy (a part of "Other" services).
These various figures show that even though the median price paid per deal in Q1:05, $16,250,000, fell from the 2004 median price of $17,320,000, increased deal volume indicates that the number of participants in the M&A market has actually grown.