Simplify the M&A Market

The Health Care M&A Monthly: Strong Finish For 2011--

Year Posts 980 Deals Worth $227.4 Billion

 
The health care merger and acquisition market saw strong results for 2011, posting a healthy gain in dollar volume over the previous year. Based on preliminary figures, the M&A market generated 980 deals worth $227.4 billion, which was 9% higher than the $207.7 billion recorded in 2010. Despite apocalyptic headlines in the media about the end of the euro, the dollar, the economy and the world, deal makers readily utilized the M&A market to grow their businesses.

During the 10-year period from 2002 through 2011, 2011 ranks fourth in terms of dollar volume. The table on page 20 provides figures for each year. It shows that dollar volume jumped from about $96.0 billion a year for 2002-03 to a plateau of $163.0 for 2004-05. It reached a peak of $268.4 billion in the heady days of 2006. The credit crunch and failure of exotic instruments that then launched the Great Recession punctured that bubble, but when it deflated, annual dollar volume settled down to the neighborhood of about $230.0 billion (except for 2010), which is still 40% above the levels of 2004-2005. Despite the financial wringer through which the economy has lurched, capital remains available for the M&A market. It is true that smaller firms still face challenges in borrowing money in the current climate; larger companies have generally finessed this problem by funding acquisitions, at least in part, from their own cash flow.

It is not just dollar volume that has clustered around certain levels during the past decade, so too has deal volume. From 2002 through 2005, the volume of mergers and acquisitions settled on about 950 deals a year, which jumped to about 1,000 thereafter (with 2009 reverting to the earlier, lower level). The fact that our current database lists just 980 deals, as against 2010’s 1,007 transactions, is no cause for alarm that the M&A market is in danger of shrinking. As always, our figures are subject to revision, based on new information that may come our way (including the elimination of deals that fail to close from our database and statistics). We believe that when the 10-Ks come due this March, we will see an increase in 2011’s deal volume to over 1,000 with, perhaps, a modest increase in total dollars committed to M&A. This residue tends to consist of smaller deals with smaller price tags that will have little impact on overall pricing.

 Results For 2011—By The Numbers

In 2011, health care services accounted for 545 deals, or 56% of the total deal volume, with technology accounting for the remaining 435 deals. This reverses a trend of earlier years when the technology segment produced more deals than the services segment. Among the individual sectors announcing 100 deals or more in 2011, Medical Devices led the pack with 170 deals, followed by Long-Term Care with 161, Pharmaceuticals with 115 and Physician Medical Groups with 107. The two most sluggish sectors were Behavioral Health Care and Rehabilitation with 12 and 14 deals, respectively...Want to read more? Click here for a free trial to The Health Care M&A Monthly and download the current issue today