Simplify the M&A Market

Health Care M&A Spending Grows in Q2 2013, Compared with Q1 2013, According to Irving Levin Associates, Inc.

FOR IMMEDIATE RELEASE  Stephen M. Monroe, Editor
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NORWALK, CT – July 29, 2013 – Health care merger and acquisition activity strengthened in the second quarter of 2013. Deal volume was up 10% versus the previous quarter, with 223 deals announced. However, the quarter underperformed (-15%) in comparison with the same quarter a year ago, according to The Health Care M&A Report. Deal value rose significantly compared with the previous quarter. The preliminary total for health care M&A activity in the second quarter is $52.6 billion, up nearly 252%, compared with the $14.9 billion spent in Q1:13. Deal value held steady compared with the second quarter of 2012, when buyers committed $52.3 billion.

                        The Health Care M&A Market – Deal Volume by Sector

  Q2:13 Q1:13   Q2:12  
Sector Deals Deals %
Changed
Deals

%
Changed

Services          
Behavioral Health Care 4 7 -43% 4 0%
Home Health & Hospice 10 9 11% 6 67%
Hospitals 15 22 -32% 26 -42%
Laboratories, MRI & Dialysis 10 8 25% 10 0%
Long-Term Care 53 43 23% 36 47%
Managed Care 3 2 50% 9 -67%
Physician Medical Groups 17 12 42% 24 -29%
Rehabilitation 4 1 300% 3 33%
Other 29 21 38% 26 12%
     Services subtotal 145 125 16% 144 1%
Technology          
Biotechnology 17 11 55% 21 -19%
eHealth 6 16 -63% 24 -75%
Medical Devices 25 24 4% 45 -44%
Pharmaceuticals 30 27 11% 29 3%
      Technology subtotal 78 78 0% 119 -34%
Grand Total 223 203 10% 263 -15%

Source: Irving Levin Associates, July 2013

Three sectors posted declines compared with the previous quarter: Behavioral Health Care (-43%), eHealth (-63%) and Hospitals (-32%). In the Behavioral Health sector, the number of M&A deals is typically fewer than 10 announced per quarter, so even a minor change in the number of deals can result in exaggerated swings. The eHealth sector, however, is seeing a definite slowdown from the M&A frenzy that occurred in Q2:12, when 24 deals were announced. Since then, deal-making activity has tapered off: only six deals were announced in the most recent quarter. In the Hospital sector, economic pressures brought on by weakening inpatient volumes and Medicare reimbursement reductions have created an atmosphere of uncertainty, particularly for non-profits. “Survival of the biggest” is one motivation behind big hospital deals such as Tenet Healthcare Corp.’s (NYSE: THC) $4.3 billion acquisition of Vanguard Health Systems (NYSE: VHS).

The health care services sector still managed to post a 16% gain over Q1:13, with 145 deals announced, and eked out a 1% increase versus Q2:12. The health care technology sector remained steady, with 78 deals announced in each quarter. Biotechnology, Pharmaceuticals and Medical Devices each showed an uptick in M&A activity, while eHealth held the sector back from greater gains.

“The health care merger and acquisition market is held hostage to the onset of the Affordable Care Act,” said Lisa E. Phillips, editor of The Health Care M&A Report. “Some services sectors, such as Home Health and Hospice, Long-Term Care, Physician Medical Groups and Rehabilitation, are seeing continued activity, thanks to the move toward Accountable Care Organizations.”

The Biotechnology sector experienced a strong rebound, up 55%, with 17 deals announced in the second quarter. Eleven transactions were initiated by other biotech companies, and five acquirers were pharmaceutical companies hoping to bolster their product pipelines. One private equity firm, Ares Life Sciences, purchased a biotech company, Antigen Laboratories.

Pharmaceutical companies were also busy buying other pharma companies, or certain assets of other pharmas. Fifteen of the 30 announced deals in this sector involved the rights to drugs still in clinical trials, rights to commercialize drugs in new geographic markets or the intellectual property rights to promising early-stage drugs.

“Expect the Biotech and Pharmaceuticals sector to stay active,” Ms. Phillips said. “Investors are paying a lot more attention, thanks to the surge in the biotech IPO market this year. Valuations are a bit crazy right now, with Onyx Pharmaceuticals looking for more than $120 per share. How that deal plays out will set the tone for the healthcare technology sector through the end of the year.”

For more information on The Health Care M&A Information Source or The Health Care M&A Report, or for a membership to any of Irving Levin Associates’ subscriptions, please call 800-248-1668. Irving Levin Associates, Inc., established in 1948, has headquarters in Norwalk, CT and is online at www.levinassociates.com.  This privately held corporation publishes research reports and newsletters, and maintains merger and acquisition databases, on the health care and senior housing markets.