The Health Care M&A Monthly: First Quarter 2010 M&A Results--

Two-Hundred-Eleven Deals Posted Worth $25.3 Billion

Based on preliminary results, a total of 211 mergers and acquisitions were announced in the health care industry during the first quarter of 2010. This figure represents a 21% decrease from the 268 deals posted in the previous quarter, Q4:09, but a 4% increase over the 203 deals announced in the year-ago quarter, Q1:09.
 
The health care technology segment produced 130 deals, or 62% of the first quarter’s M&A activity, while the health care services segment acounted for the remaining 38%. Reporting 39 deals apiece, the Medical Device and Pharmaceutical sectors each captured 18% of the total deal volume. They were followed by Biotechnology with 30 deals. Together these three sectors posted 51% of all mergers and acquisitions announced in the first quarter. By contrast, the services sectors had a lackluster quarter. The Behavioral Health Care sector produced no deals at all while the Managed Care and Rehabilitation sectors eked out just two deals apiece. The percentage contribution of each sector to the quarter’s deal volume, along with comparisons to the previous and year-ago quarters, appears in the table on page 3 of the April issue of The Health Care M&A Monthly.

Based on available figures, a total of $25.3 billion was committed to fund the first quarter’s M&A deal making.  The four sectors of the technology segment attracted $19.6 billion, or 77% of all health care M&A dollars spent in the first quarter of 2010. The nine services sector accounted for the remaining 33%. Among individual sectors, Pharmaceuticals captured $10.0 billion, or 39.7% of the total. It was followed by Biotechnology with $6.6 billion (25.9%), Medical Devices with $2.3 billion (9.0%), Hospitals with $2.2 billion (8.7%) and Long-Term Care with $1.3 billion (5.0%).  The remaining sectors each garnered less than $1.0 billion during the first quarter, with some, such as Behavioral Health Care, garnering none. The percentage contribution of each sector appears in the chart on page 20 of the April issue of The Health Care M&A Monthly. Due to their small individual results, the figures from five services sectors had to be aggregated.

The quarter produced six billion-dollar deals worth a combined total of $11.3 billion, or 45% of the dollar volume. Interestingly, three of these deals were in technology sectors ($7.7 billion) and the other three in services sectors ($3.6 billion). By contrast, the middle market, for deals ranging from $100.0 million up to $1.0 billion, produced 37 deals worth $11.9 billion. It is the middle market which has been the locus of M&A activity in recent quarters.

In certain respects, the M&A market for Q1:10 represented a continuation of the 2009 market. For example, both periods focused on the middle market and largely eschewed the grand gestures of multi-billion-dollar deals. However, as the drop in deal volume from the previous quarter suggests, activity appeared to have been muted during the first quarter over the vociferous battle leading up to the passage of health care reform in Congress. We believe that M&A activity will now pick up because, despite claims by the loyal opposition to repeal and replace the recently enacted legislation, passage of the bill allows businesses better to predict revenue and cash flow going forward. Some sectors, such as Hospitals, will likely benefit from the addition of up to 32 million members to the insurance rolls while other businesses, such as Medicare Advantage plans, may not fare as well. But now that they can see the regulatory landscape more clearly, health care companies are better equipped to meet its challenges and opportunities. Naturally, mergers and acquisitions will be one way to help them do so.