The Health Care M&A Monthly: Third Quarter 2008 M&A Results–

251 Deals Announced Worth $88.7 Billion
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During the third quarter of 2008, the health care industry posted a total of 251 mergers and acquisitions. This represents an 8% decline from the 274 deals in the previous quarter and a 9% decline from the 277 deals in the year-ago quarter, Q3:07. The four sectors of the health care technology segment posted 137 deals, or 55% of the total deal volume, while the nine sectors of the corresponding services segment posted the remaining 114 transactions.
Three sectors combined, Medical Devices, Biotechnology and Pharmaceuticals, accounted for 47% of the deal volume in the third quarter. By contrast, four services sectors, Physician Medical Groups, Rehabilitation, Behavioral Health Care and Managed Care, posted results in single digits. Each sector’s contribution to third quarter deal volume, along with comparisons to the previous and year-ago quarters, appears in the table on page 3 of the October issue of The Health Care M&A Monthly.
Based on prices revealed to date, a total of $88.7 billion was committed to fund those 251 deals. This figure represents a 3% increase over the $86.2 billion in the previous quarter and a 78% increase over the $49.9 billion in the year-ago quarter. Biotechnology posted the largest amount of any single sector, with $56.0 billion, or 63.2% of the quarter’s total amount. It was followed by Pharmaceuticals, with $22.3 billion (25.2%) and “Other” Services with $3.8 billion (4.3%). The normally stalwart and dependable Medical Device sector generated just $3.3 billion (3.8%). The contribution of each sector to the quarter’s total dollar volume appears in the chart on page 15 of the October issue of The Health Care M&A Monthly. However, due to meager results, four sectors were aggregated: Home Health Care, Laboratories, Physician Medical Groups and Rehabilitation.
Of the third quarter’s dollar volume, $82.1 billion, or 93% of the quarter’s total amount, came from the technology segment, with the services segment accounting for the remaining $6.6 billion (7%). There were nine billion-dollar deals announced during the quarter, totaling $73.0 billion. Among the 20 largest deals of Q3:08, a total of $74.9 billion was spent by foreign buyers and $5.8 billion by domestic buyers. As noted in our August issue, foreign buyers have been taking advantage of the acquisition opportunities presented by a historically low dollar.
While financial buyers, such as private equity firms and REITs, were present in the market, strategic buyers clearly dominated health care M&A activity in the third quarter. The few financial buyers in the market announced just 11 acquisitions worth a combined total of $1.2 billion; strategic buyers were responsible for everything else.
These figures may offer some perspective on the health care M&A market in the context of the credit crunch, now a year in the making. In discussing the economic turmoil buffeting the markets, pundits have often organized their stories around themes drawn from fairy tales; the two most frequently quoted seem to be “Chicken Little” and “The Emperor’s New Clothes.” But the numbers tell a different story. Even if we ignored any activity after the end of September, this year would still rank as the third most active year in terms of dollar volume, with $202.9 billion, after 2006 ($268.4 billion) and 2007 ($226.5 billion). With numbers as robust as these, investors and dealmakers appear to be broadcasting to the rest of us their confidence in a sound health care M&A market.
 
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