The Health Care M&A Monthly: Health Care’s Big Buyers In 2009--

29 Buyers Spent $1.0 Billion Or More On Acquisitions

We know from holiday seasons past that the home stretch between Thanksgiving and New Year’s Day rarely sees large, important deals in the health care M&A market. Instead, dealmakers use the period to close out the deals they announced earlier in the year. And while deal making will continue through the remainder of the year at a muted pace, this brief lull in activity gives us the chance to rank the big spenders in the 2009 M&A market.

From January through the end of November, a total of 106 buyers announced two or more mergers and acquisitions in the health care industry, accounting for 351 transactions, or 42% of that period’s total 836 deals, while the remaining 485 buyers announced just one deal each. These figures resemble 2008’s results when 123 buyers announced two or more deals, accounting for 356 transactions, or 40% of that period’s total deal volume.

What They Paid

The combined value of the 351 deals in the first 11 months of 2009 is $184.8 billion, or 85% of the total $217.6 billion that was committed to health care M&A during that period. This indicates that in terms of dollar value, M&A activity is concentrated in the hands of the multiple buyers. And this percentage represents an increase over the 2008 comparable figures in which the multiple buyers spent a combined total of $159.6 billion on 356 deals, or 74% of the dollars spent on M&A. Thus, over two years, this cohort accounts for an increasing share of acquisition activity.

The disproportionate share captured by multiple buyers—along with other statistics—was skewed in 2009 by two mega-deals in the pharmaceutical sector. Pfizer (NYSE: PFE) bought Wyeth (NYSE: WYE) for $68.0 billion while Merck & Co. (NYSE: MRK) purchased Schering-Plough Corp. (NYSE: SGP) for $43.3 billion. These two transactions by themselves account for 51% of the total dollars committed to health care M&A during the first 11 months of the year. Both have already closed, indicating that financing for big deals is still available despite the hobbling effects of the credit crunch.

The Billionaire’s Club

While buyers who had the greatest financial resources at their disposal for M&A tended to make multiple deals during 2009, illustrating the benefits conferred by economies of scale in this market, there were also buyers who made just one large deal. Those buyers who spent the most on deal making are ranked in the table on page 3. The billionaire’s club includes 29 buyers who each committed $1.0 billion or more to their health care acquisitions programs. Together, they committed $188.4 billion to make a total of 114 deals. Nine of these 29 buyers acquired just one company. And within this club, M&A activity has became progressively more concentrated in comparison with the prior-year periods. In 2008, 24 buyers announced 73 deals worth $176.4 billion; in 2007, 46 buyers announced 130 deals worth $158.4 billion.

As we have come to expect, the technology sectors dominate the table on page 3, with the top six slots occupied by big pharma companies. Overall, eighteen out of the top 30 acquirers are pharmaceutical companies. Also included on the list are five medical device companies, two biotechnology firms, two e-health companies and just one health care services company, a pharmacy benefits manager. Also noteworthy is the presence of two private equity firms on this list, showing that media reports of this industry’s demise may be exaggerated.

Of the 29 billion-dollar buyers in the table, 18 are based in the United States ($156.1 billion), two in Switzerland ($7.5 billion), two in Japan ($3.8 billion), two in Denmark ($2.5 billion), and one each in the United Kingdom ($9.6 billion), France ($5.4 billion), Canada ($1.3 billion), Germany ($1.2 billion) and Ireland ($1.0 billion). Focusing on the top 10 buyers for 2008 and 2009, we find a reversal. In 2008, eight foreign firms spent $134.7 billion while two U.S. domestic firms spent $13.3 billion. In 2009, however, seven domestic firms spent $137.8 billion while three foreign firms spent just $20.2 billion.

Volume Buyers

Shifting perspective, the table on page 7 ranks the most active buyers for 2009 in terms of deal volume, or the number of deals each buyer undertook. The top 30 companies announced a total of 184 deals. While big pharma still dominates the upper reaches of this list, a greater number of services companies now comes into view, including consolidators in the home health care, long-term care and physician medical group sectors. Within this group, the technology segment accounts for 123 deals, or two-thirds of the total, while the services segment accounts for the remaining 61 deals. Also within this group, domestic buyers collectively account for 116 deals, or 63% of the total; foreign buyers, though they top the list, account for 68 deals (37%).

At this juncture, the $217.6 billion spent on health care M&A during the first 11 months of 2009 falls just $10.0 billion short of tying 2008 ($226.9 billion) for third place in terms of dollars spent on health care M&A. The current year has already surpassed 2005 and 2004, when $162.3 billion and $164.3 billion were spent, respectively, on deal making. This is a remarkable feat for an economy that has just begun to emerge from the Great Recession. As noted last month, the health care industry has captured the largest share of the domestic merger and acquisition market, and shows robust signs of continuing to do so. This is paralleled by recent results in the venture capital market where health care is fast overtaking information technology as the industry in which to invest. Going forward, we anticipate strong M&A activity in the health care industry. Sectors to watch include biotech, pharma and long-term care (though we will also watch the others).