The Health Care M&A Monthly: Second Quarter 2008 M&A Results--

Health Care Makes Strong Showing Despite Economic Jitters

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Health care merger and acquisition activity proved to be very robust during the second quarter of 2008, despite the malaise we are seeing in the financial and real estate markets. Though not completely insulated from the surrounding economy and its influence, the health care M&A market appears to run on an internal logic of its own and to have access to sufficient capital to make it happen.

Bolstered by the announcement of 100 deals in the month of June alone, a total of 265 transactions were posted in the 13 sectors of the health care industry that we cover. As the table on page 8 shows, this figure represents a 19% increase over the 223 deals of the previous quarter and a 5% increase over the 252 deals of the year-ago quarter, Q2:07. The four technology sectors together account for 155 deals or 58% of the current quarter’s total deal volume, with the nine services sectors posting the remaining 110 deals (42%). The three most active sectors combined, Medical Devices, Pharmaceuticals and Biotechnology, saw a total of 135 deals, just over half of the total deal volume. In general, however, the services sectors languished, reflecting a certain amount of investor lethargy on this side of the health care industry, as anything technology related is attracting investor interest.

Based on purchase prices revealed to date, a total of $85.6 billion was committed to fund the second quarter’s M&A activity. The technology segment naturally enough captured the lion’s share with $80.7 billion, leaving the remaining $4.9 billion to the services segment. This amount represents a 210% increase over the $27.7 billion spent in Q1:08, and a 40% increase over the $61.3 billion in Q2:07, the year-ago quarter before it all hit the fan. While it is true that one mega-deal, Novartis’ (NYSE: NVS) bid to buy Alcon (NYSE: ACL) for $39.0 billion, the largest medical device deal ever announced, contributes significantly to the overall total, even without it, the remaining figures are impressive. The quarter produced another eight billion-dollar deals with a combined value of $29.9 billion. The percentage contribution of each sector to the total dollar amount committed during Q2:08 is given in the chart on page 16, where all the technology sectors outrank the services sectors and five services sectors, because of meager results, have to be aggregated.

Half-Year Results. The first six months of 2008 saw the announcement of 488 deals in the health care industry. A total of $113.3 billion has been committed to fund this activity. The only prediction we feel confident making for the remainder of the year—too obvious, perhaps?—is that health care M&A will continue to prosper in those sectors and businesses that are technologically oriented.

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