The Health Care M&A Monthly: Health Care’s Big Spenders In 2007--

46 Buyers Each Spent $1.0 Billion Or More On M&A

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While the period from Thanksgiving through New Year’s Day
tends to bring out the shopaholic in us, health care businesses generally use this time to wrap up deals previously announced because they have been out shopping throughout the year. And while December will not be without its share of deals, we can now look back on 2007 to see who the most prodigious buyers were in the health care industry, what sectors they targeted and why they pursued their transactions.

From January through the end of November 2007, a total of 146 buyers announced two or more deals. These "serial" acquirers account for a total of 441 transactions, or 46% of the 958 deals announced during that period. The combined value of these deals is $97.7 billion, or 47% of the $206.6 billion spent in that same period. These acquirers thus account for nearly half of all health care M&A activity.

Repeat buyers were present at every level of the market, from AstraZeneca’s (NYSE: AZN) 10 deals for $17.7 billion, to Amedisys’ (NASDAQ: AMED) nine deals for $107.0 million through to LHC Group’s (NASDAQ: LHCG) five deals for an estimated $25.0 million. It will come as no surprise to regular readers of this newsletter that at the high end of the scale, the sectors most frequently targeted included Biotechnology, Long-Term Care, Medical Devices and Pharmaceuticals.

The table on page 9 of the December issue of The Health Care M&A Monthly ranks the 46 organizations that each committed $1.0 billion or more to M&A activity during 2007. These 46 announced a combined total of 130 deals worth a total of $158.4 billion. Fourteen of the buyers were private organizations; all but one of them were financial buyers such as private equity firms. And the sole privately-held strategic buyer in the list, ReAble Therapeutics with three deals, is strongly backed by The Blackstone Group, a well-known private equity shop. The private cohort was responsible for just 17 deals worth a total of $37.7 billion. Accordingly, the majority of buyers, in terms of both deal and dollar volume, are strategic buyers.

While the financial buyers acquire companies to make them more productive, then resell them at higher valuations and turn a profit, the strategic buyers have a variety of additional motivations for deal making. Big pharma has been using M&A as a form of R&D; instead of developing new products in-house, they are buying biotechs with promising late-stage drug candidates. Globally, the industry has also been using deals as a way to enter new markets rather than establish de novo outposts in countries where they have not historically been present. A number of the big pharma companies are also in search of replacements for their blockbuster drugs threatened with near-term patent expiration. For example, sanofi-aventis (NYSE: SNY), faced with generic competition for drugs representing 50% of its revenue, was highly motivated to undertake five deals in the biotech and pharma sectors this past year. Some companies, such as Emeritus Assisted Living (AMEX: ESC) and ReAble Therapeutics, were seeking economies of scale by consolidating smaller, complementary businesses in the seniors housing and orthopedics spaces, respectively. Among the health care services providers, no matter their size, transactions were often undertaken to establish a more dominant market position. Community Health Systems, for example, used deal making to become the largest publicly traded hospital company in the country, while home health provider Amedisys’ nine deals extended its provider network, making itself more attractive to big multistate clients. The current fragmentation in various provider sectors guarantees that robust consolidation of this sort will continue into next year and beyond.
 

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