In the August 2007
issue:
Medical Devices Attract Big Bucks-
Strategic Buyers Move To Consolidate Diagnostics Industry
Within July’s vibrant Medical Device merger
and acquisition market, diagnostic testing companies have taken center
stage.
Read the story to see who is making the big moves and why, and who is the
next likely target.
...
July’s Health
Care M&A Market--
Activity Remains Robust Despite Credit Challenges
Jitters in the financial markets have recently led some to ask whether the
health care merger and acquisition market will seize up.
Placing the question in context, we discuss which factors favor continued
robust M&A activity.
...
In the Departments
Services
-Health Care Services
-Deal Summaries
-Additional Transactions
-Transaction Updates
Technology
-Deal Summaries
-Additional
Transactions
-Transaction Updates
-Health Care
Technology
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Articles Archive
Companies Mentioned in this issue:
August 2007
A
Abbott Laboratories p10
Acadia Pharmaceutical p16
Actavis Group p16
Alnylam Pharmaceuticals p15
Alta Healthcare System p3
American Imaging Management p8
Anaheim Memorial Medical Center p4
Arrow International p10
Ascension Health p4
AstraZeneca plc p16
Atria Senior Living p8
B
Banc of America Securities LLC p14
Bank of America, NA p3
Barbara Ann Karmanos Cancer Institute p4
Bayer Diagnostics p1
Beckman Coulter p10
Biogen Idec p16
BUPA p4
C
Cardiokine p16
Caritas Christi Health Care p4
Cepheid p10
Chester River Health System p4
Cinven p4
Citigroup Global Markets p8
Clinique de Carouge p4
Coast Carolina Medical Center p4
Colony Capital p4
Coventry Health Care p8
Credit Suisse p14
Credit Suisse Securities p8
D
Dade Behring Holdings p1
Detroit Medical Center p4
Diagnostic Products Corporation p1
DJO, Inc. p14
DOCS International p8
Domain Associates p16
E
Eastern Health System p4
Encore Medical Corp. p14
Envision Hospital Corp. p4
ev3 p14
F
Flexpoint Partners, LLC p3
Forest City Enterprises p8
Fortress Investment Group p8
Forward Ventures p16
FoxHollow Technologies p14
G
GE Healthcare p10
Gen-Probe p10
GlaxoSmithKline p15
Goldman Sachs p8
Greater Southeast Community Hospital p4
H
Harris Williams & Co. p2
HCA p4
Holiday Retirement Corp. p8
Hologic p10
Hospital de la Tour p4
I
ICON plc p8
IntegraCare Home Health p3
Intercell p16
Interwest Partners p16
J
J.P. Morgan Securities p15
JPMorgan p8
K
Kyphon p10
L
Lazard p14
Lazard Capital Markets, LLC p10
LifePoint Hospitals p4
Luminex p10
M
Manor Care p8
Meda AB p16
MedPointe p16
Medtronic p10
Mercapital p4
Merck p15
Montreux Equity Partners p16
N
NovaCardia p16
Novartis AG p16
Novator p16
O
Option Care p3
P
Piper Jaffrey p10
PRA International p8
Prime Healthcare Services p4
Prospect Medical Holdings p3
R
ReAble Therapeutics p14
Roche Diagnostics p10
S
Siemens AG p1
Sirna Therapeutics p15
Skyline Ventures p16
Sonic Healthcare p4
St. John Health p4
St. John Riverview Hospital p4
St. Vincent Catholic Medical Center p4
Sunrise Medical Laboratories p4
Sunrise Senior Living p8
T
Targacept p15
Teleflex p10
Tenet Healthcare Corp. p4
The Blackstone Group p14
The Braff Group p3
The Carlyle Group p8
The Cypress Group p16
U
UBS Investment Bank p8
University of Maryland Medical System p4
USP Hospitales p4
V
Ventana Medical Systems p10
Versant Ventures p16
Via Christi Health System p4
Vista Health Plans p8
W
Wachovia Securities p14
Walgreen p3
Walgreens Home Care p3
WellPoint p8
Z
Zimmer Holdings p14 |
July’s Health Care M&A Market--
Activity Remains Robust Despite Credit Challenges
Email Editor
If you picked up a newspaper or logged onto
a financial website during the second half of July, you would think the
markets, including the M&A market, were locked in a downward tailspin. The
last full week of July saw the DJIA fall 311 points, or 2%, with the
sell-off nullifying the takeover premiums that had buoyed up the share
prices of many companies considered to be buyout targets. And the media
teemed with stories of how the crisis in the subprime mortgage market
would metastasize and dry up liquidity in the credit markets. So how do
these portents of doom square with what is currently taking place in the
health care M&A market?
First, let’s take a look at what actually
happened during July. The month saw a total of 79 mergers and acquisitions
announced in the 13 sectors of the health care industry that we
traditionally cover. The four sectors of the technology segment produced
41 deals, or 52% of the month’s total deal volume, while the nine sectors
of the services segment produced the remaining 38 transactions (48%). The
Pharmaceutical sector led the pack in deal volume with a total of 18.
Long-Term Care followed with 12 and Medical Devices with 11. Taken
together, these three account for 52% of July’s deal volume. Straggling at
the other end of the spectrum were Rehabilitation with one deal and
Behavioral Health with none. Based on prices revealed to date, a total of
$33.7 billion was committed to fund July 2007’s M&A activity. This
included eight billion-dollar deals worth a combined total of $26.4
billion, or 78% of the month’s total expenditure. While July’s deal volume
is in line with the 78 deals per month that the market averaged in the
first six months of 2007, the dollar volume is a healthy 62% above the
average $20.8 billion per month committed in the same time period.
Overall, it looks pretty robust to us.
So why the dire predictions in the
general media? It has long been conventional wisdom that the M&A market
was floating the stock market on a rising tide because everyone was viewed
as a takeover target in this market, helping to prop up valuations. While
the past few months have shown signs that pricing and premiums are
leveling off—the Long-Term Care sector being a case in point with cap
rates at all time lows—that does not mean that prices and premiums are
falling. It seems that the market has fully valued some of the potential
targets so there will just be fewer bargains to be had on the assumption
that values will keep rising.
We think the markets have to get much
worse for lenders to become so squirrely as to cut back on funding by
tightening conditions and raising interest rates to the point where it
throttles dealmaking. And if they did, who would be affected? Perhaps the
first would be the private equity firms who have been banking (literally)
on low interest rates to conduct leveraged buyouts. The added cost of
servicing debt at higher rates would probably lead some PE folk to
question whether they could get the same bang out of their buck. One
effect would likely be a slowdown in the pace of dealmaking, but not a
cessation; after all, there is still an enormous backlog of capital
waiting to be invested.
Further, the health care M&A market does
not rely solely, or even primarily, on financial buyers such as PEGs, but
on strategic investors who want to grow their businesses. The Medical
Device sector, profiled this month (see page 1), is a case in point. As
long as they retain strong fundamentals, strategic buyers can always use
their own stock as an acquisition currency. The dominance of strategic
buyers seems particularly strong within the core sectors of health care.
As noted in Harris Williams & Co.’s analysis in last month’s issue,
there are fewer financial buyers in the core "health care heavy" sectors
than in the more peripheral "health care light" sectors. Strategic buyers
will still be in the market for deals, regardless of what private equity
does.
Individual sectors are naturally being
impacted by changes to reimbursement protocols. Hospitals will continue to
scramble until they can nail down their "bad debt" collections problem,
and inpatient Rehabilitation will become more attractive as CMS raises
rates. Overall, though, we see the health care M&A market as fundamentally
strong in the medium term, and expect the midsummer’s market corrections
will have subsided by fall. Even if the overall M&A market slows, health
care will remain relatively robust. In its favor are two obvious factors:
the industry is largely noncyclical and its growth is underwritten by the
demographics of an aging population.
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