The Health Care M&A Monthly: 2012 M&A Sprints Out Of Gate--

Posts Record Deal Volume In January

 
January inaugurated a robust health care merger and acquisition market by posting 95 deals worth a combined total of $17.2 billion. Deal volume, in particular, reached its highest level in over a decade. This figure represents a 34% increase over the 71 deals posted in January 2011. And it is even 7% greater than the 89 deals posted in January 2006, when unsustainable amounts of capital were still inflating the housing bubble.

With 50 deals worth a combined $14.95 billion, the health care technology segment captured 53% of the total M&A deal volume and 87% of all dollars spent on health care. Among the individual sectors, Medical Devices led the pack with 21 deals (22%) worth $6.9 billion (40%). The services segment, by contrast had 45 deals (47% of the total) worth $2.2 billion (13%).

Not everyone took note, however, of the increased transaction volume. Our colleagues at The Wall Street Journal, taking their cue and figures from a big box data aggregator, ran a story declaring, “January M&A on Track for Lightest Month Since 2004.” Of course, their data provider was looking at all industry sectors and not just health care, but it is perhaps that lack of focus, combined with a by-now inbred pessimism, that led them to overlook the activity that is actually taking place under their noses.

 The Middle Market

And under their noses is the middle market, where the great majority of January’s deal making took place. Only three deals boasted price tags of $1.0 billion or more, followed by 15 deals priced at between $100.0 million and $1.0 billion. The remaining transactions, roughly four-fifths of the total deal volume, came in with prices under $100.0 million. (To clarify: Not all the deals announced in January came with price tags, but we feel safe in assuming that since it is harder to hide big prices than smaller ones, those deals with undisclosed price tags were generally under $100.0 million.) It’s the big, splashy deal with the ginormous price that can “buy” its way into the headlines of the general media; smaller deals are simply ignored.

A bias against recognizing the small or mid-size deal may even have cropped up over the past few years of financial turmoil. After all, with the onset of the Credit Crunch, where were small companies to find financing for their deals? (Let’s not even discuss using stock as an acquisition currency after the plunge in equity values through to the generational bottom in March 2009.) Only the big companies with hefty internal cash flow could do this, so conventional wisdom tells us. Supporting this contention is the fact that out of the top 10 deals in January, eight were carried out by big, publicly traded Pharma or Biotech companies. Still, smaller, well-run companies have also been generating cash flow, as well, and have put it to use in acquisitions, albeit smaller ones...Want to read more? Click here for a free trial to The Health Care M&A Monthly and download the current issue today