HEALTH CARE SERVICES M&A FOCUSES ON MIDDLE MARKET IN 2008, ACCORDING TO IRVING LEVIN ASSOCIATES, INC.

 

FOR IMMEDIATE RELEASE Stephen M. Monroe, Partner
Sanford B. Steever, Editor
800-248-1668
203-846-6800
Fax: 203-846-8300
pressreleases@levinassociates.com

 

NORWALK, CT – March 26, 2009 - Merger and acquisition activity in the health care industry’s service sectors moderated in 2008 after two record-setting years. A total of 468 deals were announced in nine sectors of the health care services industry, down 4% from the 489 deals announced in 2007. Although the drop in deal volume was negligible, the dollar value of those deals plunged by 68% from $56.8 billion in 2007 to $18.2 billion in 2008. “While dealmakers in the M&A market for health care services showed the will to pursue mergers and takeovers, the relative lack of capital inhibited both the size and the number of deals they could undertake. As a result, the 2008 M&A market was characterized by an absence of mega-deals, but a robust middle market,” commented Sandy Steever, editor of The Health Care Acquisition Report, Fifteenth Edition. “The availability of capital, including the bond market, fell while the cost of capital rose, which constrained buyers to focus on only those deals deemed necessary and strategic. This in turn prompted buyers to find creative ways to finance and execute their transactions,” continued Mr. Steever.

The hospital acquisition market mirrored the general market trend from the mega-deals of years past into the middle market in 2008. Sixty transactions were announced in 2008 involving 78 hospitals with 5,280 beds for a combined total of $2.5 billion. This represents a decrease from the $8.8 billion that was spent in 2007 to acquire 149 hospitals with 22,440 beds in 58 deals. Interestingly, hospital pricing in 2008 rose from their 2007 levels, with average and median price-to-revenue multiples of 0.84 and 0.70, respectively. The average and median values reached their second- and third-highest levels, respectively, in the period 2004–2008. Stephen M. Monroe, a partner at Irving Levin Associates, commented: “Bigger is not always better. Though smaller in size, the hospital deals in 2008 tended to target facilities that were of higher quality and had greater financial stability than many of the properties targeted by the mega-deals in 2004–2006.”

In other highlights, M&A activity in the managed care sector fell to its lowest level in five years over concerns about the recession, a new administration’s emerging health care policy and the continued ability of managed care organizations to hold costs down year after year. By contrast, activity in the physician medical group and rehabilitation sectors rose to their highest levels in the five years from 2004 to 2008. Much of this deal making involved larger organizations consolidating fragmented local markets to strengthen their provider networks. Mr. Monroe noted, “Even without the cheap and ready capital to undertake deals at will, the underlying reasons for pursuing mergers, acquisitions and takeovers remain in place.” Mr. Steever added, “Companies still want to capture increased market share, achieve improved economies of scale and consolidate fragmented industries, to name but a few goals. They will continue to be motivated by such concerns, and they will increase their level of M&A activity as the capital markets improve.”

The Health Care Acquisition Report, Fifteenth Edition, contains more than 200 pages of hard-to-find information on all publicly announced hospital, managed care, laboratory services, physician medical group, behavioral health, rehabilitation and other services mergers and acquisitions in 2008. Two other services sectors, long-term care and home health, are treated separately in The Senior Care Acquisition Report, Fourteenth Edition. Irving Levin Associates, Inc. is a Norwalk, Connecticut-based research and publishing firm specializing in health care investments. The firm has more than 50 years experience in the health care and seniors housing acquisition market. The Health Care Acquisition Report, Fifteenth Edition, may be purchased for $595 by calling 800-248-1668 or clicking here.
 

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