The Health Care M&A Monthly: Third Quarter M&A Results--

217 Transactions Announced Worth $58.4 Billion

Based on preliminary results, the merger and acquisition market in the health care industry posted a total of 217 transactions in 13 separate sectors during the third quarter of 2011. The combined value of these 217 deals totaled $58.4 billion. Despite a very rocky ride for the equity markets during the quarter, health care M&A in the the third quarter made a good showing, accounting for 31% of the 704 deals announced in 2011 and 31% of the $185.6 billion spent to fund them.

Health care services posted 111 deals, or 51% of the quarter’s total deal volume in Q3:11. Health care technology posted 106 deals, or the remaining 49%. With 47 deals to its credit, Medical Devices had the largest number of deals for any individual sector. It was followed by Long-Term Care with 27 deals and Physician Medical Groups with 25. Together, these three contributed 99 deals, or 46% of the quarter’s total deal volume. This result departs from the long-familiar pattern of health care technology sectors dominating deal volume, with Biotech, Pharma and Medical Devices usually ranking among the top two or three spots. Over the past few quarters and indicative of a palpable shift in investor sentiment, the health care services sectors have been overtaking their technology counterparts in popularity as industries held to be worthy of investment. The contributions of the individual sectors to overall deal volume appear in the table opposite, along with percentage comparisons to the previous (Q2:11) and the year-ago (Q3:10) quarters. And while the table records the decline of Q3:11 against both Q2:11 and Q3:10, we are confident that these gaps will narrow as more deals, lurking in SEC filings and elsewhere, come to light.

Another exhibit for the thesis that health care services are catching up with the corresponding technology sectors in investors’ expectations is that third quarter activity in this segment accounted for $34.3 billion, or nearly 59% of the $58.4 billion committed to M&A. To be sure, a single deal, Express Scripts’ (NASDAQ: ESRX) proposed $29.1 billion acquisition of competitor Medco Health Solutions (NYSE: MHS) is responsible for the lion’s share of the services dollars. While that deal is currently playing out in the court of public opinion and before the Federal Trade Commission, it may be in jeopardy not so much from government or trade groups as from the havoc wrecked on the equity markets over the summer. After all, the proposed consideration includes a combination of ESRX stock and cash for MHS’s shares, and ESRX’s stock price has plummeted 30% from when the deal was first announced through to the end of September.

Apart from the Express Scripts-Medco deal, the third quarter results paint a more familiar picture with technology in the foreground. Medical Devices captured $12.9 billion, or 22% of the third quarter’s total dollar volume, and was followed by Pharmaceuticals with $3.6 billion (6%) and Biotechnology with $3.0 billion (5%). At the other end of the spectrum, neither the Behavioral Health Care nor Physician Medical Group sectors registered any dollar amounts for their M&A activity. The percentage contribution of the individual sectors to the total dollar amount  appears in the chart on page four of the October issue of The Health Care M&A Monthly. Due to individually negligible amounts involved, we have had to aggregate the results for five of the services sectors...Want to read more? Click here for a free trial to The Health Care M&A Monthly and download the current issue today