The Health Care M&A Monthly: Third Quarter M&A Results -
Summer Months Are Usually Slow; No Exception This Year
Perhaps it was the hot summer that did it, or more realistically the presidential campaign and all the uncertainty around it, especially with regard to the acrimonious debates on health care policy, reimbursement cuts, controlling health care costs, who should pay for the uninsured and how, and everything else that can be thrown in for the talking heads on a daily basis. Perhaps it was the looming tax on medical device sales that resulted in a sharp drop in medical device M&A in the third quarter, a sector that has otherwise consistently been one of the most active. That remains one of the mysteries of health care reform, a highly successful American business being penalized for its success like no other. Why? Because the medical device sector can afford it? Please.
But it wasn’t just medical devices. In the technology segment, only e-health transactions posted an increase in volume over the second quarter, while both pharmaceutical and biotechnology transactions suffered declines, although nothing like medical devices. While we are fairly confident additional transactions will turn up in forthcoming SEC filings (they usually do), we were as surprised as anyone by the decline, even though it was just 9% lower than 2011’s third quarter, a traditional slow quarter anyway. The pharmaceutical sector is the most international of all, so maybe the economic uncertainty in Europe has caused some concerns from those buyers, or from potential sellers who will not obtain as high a price as they may in the future when things calm down across the pond.
In the services segment there were two bright spots in the third quarter. There was a nearly 45% increase in long-term care transactions, sparked by the investment appetite of the health care REITs, large and small, as well as the improving economics of the private pay seniors housing side of the business. Remarkably, even as future cuts to Medicare and Medicaid are mentioned on a daily basis, the acquisition activity for skilled nursing facilities remains robust, and some of the highest per-bed prices ever paid have transacted in 2012. The theory is that the low-cost producers (skilled nursing facilities among them) will benefit from any changes in the health care system, as long as they can deliver the goods on quality of care and not overpromise.