In the January 2007
issue:
Health Care M&A Results For 2006 - A Record Year By The Numbers
Nearly 1,000 mergers and acquisitions were announced in the health care
industry during 2006. The $260.7 billion committed to fund this activity
represents a 59% increase over the previous record high posted in 2004.
...
The Orthopedics M&A Market - Will Smith &
Nephew Ultimately Join Forces With Biomet?
Smith & Nephew lost Biomet to a private equity group for $10.9 billion. Will
it become the next acquisition target? Read inside for the pros and cons.
...
Q4:06 Dealmaking
The fourth quarter of 2006 saw 226 deals. Based on revealed prices, a total
of $75.8 billion was committed to finance them.
...
In The Departments
Services
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Health Care Services
-
Deal Summaries
-
Additional Transactions
-
Transaction Updates
Technology
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Health Care Technology
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Deal Summaries
Additional Transactions
-
Transaction Updates
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Articles Archive
Companies Mentioned in this issue:
January 2007
A
Advanced Pediatric Care p4
AIG Altaris Health Partners p8
Altus Pharmaceuticals p11
Ascension Health p4
B
B.A. Healthcare, LLC p8
BA Venture Partners p8
Banc of America Securities p7, p15
Barr p16
Biomet, Inc. p1
Blackstone Group p10
Bon Secours Health Care System p4
Bristol-Myers Squibb p11
Brookdale Senior Living p7
C
Canaccord Adams, Inc. p11
Caremark Rx p3
Caritas Christi Health System p4
Carnegie Mellon University p11
Catholic Health East p4
Centene Corp. p8
Centerpulse p1
Cerexa p15
Cipla p16
Citigroup p9
Citigroup Global Markets p4
Cohen & Steers Capital Advisors p7
Concuity p11
Coventry Health Care p8
Credit Suisse p9
CVS p3
D
Disc-O-Tech Medical Technologies Ltd. p15
Domantis p10
Dynamic Healthcare Solutions p8
E
Exelixis p11
Express Scripts p8
F
FirstGuard Health Plan Missouri p8
Forest Laboratories p15
Fortress Investment Group p4
G
Genetech p11
Genmab A/S p10
Getinge AB p11
GlaxoSmithKline p10
Goldman, Sachs & Co. p7
Goldman Sachs Capital Partners p10
H
HCA p3
HealthWorks p8
Holiday Retirement Corp. p7
Horizon Health Corp. p4
Hoya Corp. p15
Huntleigh Technology p15
I
Indevus Pharmaceuticals p16
J
J.P. Morgan p15
Johnson & Johnson p10
K
Kohlberg Kravis Roberts & Co. p10
Kyphon p15
L
Lonestar Healthcare p8
Lupin Ltd. p16
M
Medco Health Solutions p9
Merck KGaA p16
Merrill Lynch & Co. p4
Missouri Care p7
Morgan Stanley p1
N
Nationwide Health Properties p7
Needham & Company, LLC p8
Nomura Code Securities p10
Novartis p16
O
Olympus p15
On Assignment p8
Osteobiologics p10
P
Partners HealthCare p4
Pediatric Services of America p4
Pentax Corp. p15
Peptech, Ltd. p10
Pfizer p3
Plethico Pharmaceuticals, Ltd. p16
Post Acute Medical, LLC p8
Praecis Pharmaceuticals p11
Psychiatric Solutions p4
R
Ranbaxy Laboratories p16
Richland Ventures p8
S
Salix Ventures p8
Sandoz p16
sanofi-aventis p16
Scancell, Ltd. p10
Schaller Anderson p7
Serono, S.A. p16
Silver Point Finance, LLC p8
Smith & Nephew p1
Southern Home Medical Equipment p4
St. Francis Medical Technologies p15
St. Mary Hospital p4
Stryker Corp. p10
Swope Community Enterprises p8
T
Takeda Pharmaceutical Co. p16
Teva p16
Three Arch Partners p8
TPG p10
Trintech Group p11
U
UBS p15
University of Missouri Health Care p7
V
Valera Pharmaceuticals p16
Vibra Healthcare, LLC p8
VISTA Staffing Solutions p8
W
Warm Springs Hospital System p8
WellPoint p8
Z
Zimmer Holdings p1 |
Health Care M&A Results For 2006 - A Record
Year By The Numbers
Email Editor
As we noted in December’s
issue,
2006 posted record-breaking activity in the health care M&A industry.
Based on preliminary figures (more deals will likely be mined from the
annual reports appearing over the next 90 days), a total of 991 mergers
and acquisitions were announced in the 13 sectors of the health care
industry that we cover. This is the highest volume reported in the past
six years (see the chart on page 16).
The nine sectors of the
health care services segment recorded 520 deals, a 1% decrease from the
527 in the previous year, while the four sectors of the health care
technology segment recorded 471, a 6% increase over the 443 deals
announced in 2005.
Deal
Volume
The three
most active sectors in both 2006 and in 2005—and with the same
ranking—were Medical Devices with 150 deals (2005, 141), Long-Term Care
with 143 deals (2005, 129) and Pharmaceuticals with 137 deals (2005, 128).
Taken together, these three accounted for 43% of the year’s deal volume.
E-Health saw a 13% increase in 2006 deal volume, followed by Long-Term
Care with 11% and Laboratories with 10%. On the flip side of the coin,
Home Health posted a 27% decline followed by Managed Care and
Rehabilitation, both of which saw a 10% decrease in M&A activity.
What They
Paid
The figures
in the tables on pages 3
and 16 firmly establish that 2006 was a banner
year in terms of the total dollars committed to fund the year’s M&A
activity. The $260.7 billion committed in 2006 represents a 61% increase
over the $162.3 billion in 2005 and a 59% increase over the next-highest
$164.3 billion posted in 2004.
As we have
come to expect, technology sectors led the pack, capturing $171.8 billion,
or 66% of the year’s total. This represents a modest percentage decrease
from 2005 when the technology sector garnered 71% of all the capital
invested in health care M&A. Among the individual sectors, Pharmaceuticals
led with $77.1 billion, or 29.6% of the year’s total. It was followed by
Medical Devices with $53.5 million (20.5%), Biotechnology with $36.4
billion (14.0%), Hospitals with $34.9 billion (13.4%) and Long-Term Care
with $22.5 billion (8.6%). Straggling and struggling at the other end of
the spectrum, the Rehabilitation sector posted a paltry $153.0 million
(although this does represent a hopeful 60% increase over 2005’s dismal
results).
Billion-Dollar Deals
As may be
seen from the table on page 16, a total of 35 billion-dollar deals were
announced in 2006 with a combined dollar value of $200.1 billion,
accounting for 77% of all health care M&A dollars spent during the year.
The year’s largest deal, the $33.0 billion privatization of hospital giant
HCA (NYSE: HCA) by a consortium of private equity firms, was the
largest deal ever in the Hospital sector though smaller than some
mega-deals in the Pharma industry.
Premiums
During
2006, but particularly during the second half, pundits devoted a lot of
space to discussions of the shrinking premiums that acquisitions of
publicly traded corporations were commanding in the market. Word on the
street and in print asserted that the "big deal" premium, for transactions
worth more than $500 million, had all but evaporated in 2005. Maybe some
investment banker touted this juicy factoid as a justification for
CVS’s (NYSE: CVS) recent $21.0 billion bid for pharmacy benefits
manager Caremark Rx (NYSE: CMX), which carried no premium
whatsoever. It has also been bandied about as an indication that current
M&A is more disciplined than it was in the go-go, buy-anything-that-moves
dealmaking of the mid-1990s.
Despite
rumors of its demise, most M&A analysts tend to agree that the average
2006 acquisition premium hovered around 20% above the target’s stock
price, generally but not always defined as the day before the deal was
announced. We ran our own numbers to see how health care M&A compared with
all of M&A during the year. The vast majority of transactions for which we
have relevant data are in the technology segment.
By our
calculations, the average acquisition premium commanded in all of health
care was 31%, the median 29%, some 50% more than the average for M&A
across all industries. Biotech deals commanded the highest premiums with
an average of 42.8% (median, 40.0%), followed by Pharma with an average of
27.5% (median, 29.0%), e-Health with an average (and median) of 24.3% and
Medical Devices with an average of 22.9% (median, 21.0%). Biotechnology
appears to have attracted the highest premiums—or so we can imagine
consultants advising their clients—as a reward for the risk that (selling)
investors have made in an industry which as a whole has yet to generate a
profit. Pharmaceuticals follows in second place not just because of its
increasing involvement in the biotech industry, but also because of the
tasty profits that can be reaped from sales of branded and generic drugs—Pfizer’s
(NYSE: PFE) blockbuster Lipitor generated a healthy $12.7 billion
last year). Medical Devices, as perhaps the most "mature" and least risky
sector, most closely approximated the overall average premium for all
industries. |
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