Although there were more than 230 health care mergers and acquisitions announced in the fourth quarter of 2000, of this amount only 88 transactions were in the "health care services" segment. This represents the lowest quarterly volume since the third quarter of 1993, according to our sister publication, The Health Care M&A Monthly. The other transactions comprise the "technology" segment, which includes e-health, medical devices, biotechnology and pharmaceuticals, a segment not followed in detail until the fourth quarter of 2000.

The 88 health care services transactions represent a 32% decline from the third quarter of 2000 and a 42% drop from the fourth quarter of 1999. The largest quarterly sequential declines in the fourth quarter of 2000 were in the home health (-83%), rehabilitation (-75%), physician medical group (-65%) and long-term care (-46%) sectors. Only hospitals (+33%), behavioral health (+20%) and managed care (+9%) posted increases in the number of transactions in the fourth quarter.

While no recovery is seen in the near future in the physician medical group sector, the volume of home health and long-term care transactions should increase in 2001 as both of these areas see some financial improvement. With the combination of increases in Medicare reimbursement and many financially distressed companies either returning to profitability or coming out of bankruptcy, growth by acquisition will be more viable for investors as well as lenders. The heaviest volume, however, will continue to be in the health care technology segments. The following represent several transactions that were announced in the past month:

BEHAVIORAL. Behavioral Healthcare Corporation, a provider of behavioral health care services based in Nashville, Tennessee, is selling San Juan Capestrano Hospital, a 108-bed inpatient behavioral health care facility, along with its related clinics, in Puerto Rico. The buyer, Universal Health Services (NYSE: UHS), will add inpatient behavioral health care services to the general acute care services it already provides at its three hospitals in Puerto Rico.

BIOTECHNOLOGY. Incyte Genomics (NASDAQ: INCY) is paying $77 million in cash and stock for Proteome, a privately held genomics company. This deal unites two complementary genomics companies, and brings with it Proteome’s extensive customer base of pharmaceutical companies, which includes American Home Products (NYSE: AHP), DuPont (NYSE: DD), Eli Lilly (NYSE: LLY), Glaxo Wellcome (NYSE: GLX), Merck (NYSE: MRK) and Pfizer (NYSE: PFE). LION bioscience (NASDAQ: LEON) of Heidelberg, Germany, is acquiring Trega Biosciences (NASDAQ: TREG) of Irvine, California, in an all-equity transaction worth $35 million. Trega develops ways to accelerate drug discovery from disease targets to clinical candidates with technologies such as computerized predictive models and combinatorial libraries.

E-HEALTH. Perot Systems (NYSE: PER) is acquiring Covation, an application service provider serving the managed care industry. Among other services, it hosts and provides access to business and Internet applications. This acquisition complements PER’s recent acquisition of Health Systems Designs, which makes a product that Covation extensively uses.

HOME HEALTH. Continental Home Healthcare (TSE: CHT) of Vancouver, British Columbia, is paying $2.3 million for Carepoint Health Services, a home medical business in Van Nuys, California, with assets of $3.3 million and annual revenue of $3.4 million. This deal combines two competitors in the Los Angeles County market.

HOSPITALS. Charleston County Council is selling Charleston Memorial Hospital, a 113-bed acute care facility, to the Medical University of South Carolina (MUSC) for $12.5 million. MUSC has managed the target facility, and has been negotiating to buy it for six years. Seeking to staunch its financial losses, Hillcrest Healthcare System is selling its 50% interest in a joint venture in SouthCrest Regional Hospital, a 116-bed acute care facility that opened in May 1999, to Triad Hospitals (NASDAQ: TRIH). HCA-The Healthcare Company (NYSE: HCA) is selling Seminole Medical Center, a 32-bed acute care facility, to the city of Seminole. The city of Seminole has leased the hospital for 10 years to Schuster Group, a privately held hospital management company out of Oklahoma City.

LABORATORIES, MRI & DIALYSIS. Science Applications International Corporation is selling Pathology Associates International, a contract toxocologic pathology laboratory, to Charles River Laboratories (NYSE: CRL) for $25 million in cash and a $12 million convertible note. The five-year note carries a 2% interest rate, and is convertible under certain conditions into shares of CRL at $23.38 per share. Matria Healthcare (NASDAQ: MATR) is selling the assets and business of Quality Diagnostic Services (QDS), its cardiac diagnostic monitoring subsidiary, to Card Guard Technologies of Rehovot, Israel, for $18 million. MATR bought QDS from Aurora, Colorado-based Endeavour Technologies in 1998 for $17 million, or roughly 1.81x revenue.

LONG-TERM CARE. Sunrise Assisted Living (NASDAQ: SNRZ) is selling nine assisted living facilities in Pennsylvania, New Jersey and Virginia with a combined total of 666 units for $131 million, or $197,000 per unit. The purchaser is Senior Housing Partners I, L.P., a limited partnership that will be 75% owned by five major pension funds managed by Prudential Real Estate Investments. The deal is structured as a sale and manage-back transaction with Sunrise retaining a 25% interest in the real estate venture. Sunrise also sold two ALFs to Aureus Group, LLC for $28.1 million, or $211,000 per unit. The per unit price is a record for an assisted living facility. Separately, Health Care Property Investors (NYSE: HCP) is selling three senior care facilities located in Clovis and Santa Cruz, California, and in Boise, Idaho, to Regent Assisted Living (OTCBB: RGNT) for $25.4 million, or $78,400 per unit.

MANAGED CARE. In a bid to become an investor-owned organization, Blue Cross & Blue Shield United of Wisconsin (BCBSUW) is combining with United Wisconsin Services (NYSE: UWZ). Under terms of the agreement, BCBSUW will combine with its publicly traded subsidiary, UWZ, effectively becoming a subsidiary of UWZ. UWZ will change its name to Cobalt Corporation (NYSE: CBZ). UWZ will pay $500,000 in cash and issue 31,313,390 shares of its common stock to Wisconsin United for Health Foundation.

MEDICAL DEVICES. Sulzer Medica AG (NYSE: SM) is paying $145 million for IntraTherapeutics, a company based in St. Paul, Minnesota which designs, manufactures and markets peripheral stents, devices for the treatment of peripheral vascular diseases, such as stents and balloons. DENTSPLY (NASDAQ: XRAY) is buying Friadent GmbH of Mannheim, Germany, a dental implant manufacturer and marketer with a 30% share of the global market. Eastman Kodak Company (NYSE: EK) is acquiring Lumisys (NASDAQ: LUMI), a provider of desktop computed radiography systems and x-ray film digitizers. The target’s AuntMinnie.com subsidiary, also included in the deal, is an Internet-based radiology portal. EK is paying $4.05 in cash for each share of LUMI stock outstanding.

PHARMACEUTICALS. Inhale Therapeutic Systems (NASDAQ: INHL) is buying Bradford Particle Design (BPD), a Bradford, England-based company which uses supercritical fluid technology to manufacture powder particles used in many pharmaceutical products. BPD’s technology reduces what is commonly a multistage process to a single step, thereby creating efficiencies in the drug manufacturing process. INHL will pay $180 million in newly issued stock and $20 million in cash. Aventis Pharmaceuticals (NYSE: AVE) is selling the North American rights and benefits from its Cardizem family of products, a calcium channel blocker used in the treatment of hypertension and angina, to Biovail Corporation (NYSE: BVF). The total purchase price is $409.5 million, of which $239.5 million in cash is to be paid at closing; the remainder will be paid in four quarterly installments.

PHYSICIAN MEDICAL GROUPS. The Plastic Surgery Company (AMEX: PSU) is buying The Florida Center for Cosmetic Surgery which provides elective cosmetic surgical procedures. It is staffed by five attending plastic surgeons. In 2000, the business generated revenue of about $8 million. Consideration will consist of stock, notes and cash.