In the November 2007
issue:
Health Care Acquisition Premiums--
Five-Year Study Shows Upward Trend From 2004
Examination of premiums paid in health care
transactions from January 2002 through September 2007 reveals an upward
trend since 2004.
...
October’s M&A Market--
102 Deals Announced Worth $14.0 Billion
Deal volume surged to its highest monthly level ever. A total of $14.0
billion was committed to fund this robust activity.
...
Infusion Therapy Attracts Investors--
Renewed Buyer Interest Driving Valuations Up
Investor enthusiasm for infusion therapy services is increasing, with
companies acquiring providers to complement their specialty pharmacy
business lines.
...
In the Departments
Services
-Health Care Services
-Deal Summaries
-Additional Transactions
-Transaction Updates
Technology
-Health Care Technology
-Deal Summaries
-Additional Transactions
-Transaction Updates
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Articles Archive
Companies Mentioned in this issue:
November 2007
A
Accredo Health p9
Alere Medical p8
Almost Family p4
Amedisys p4
Amity Group p8
Anacor Pharmaceuticals p10
Apria Healthcare Group p1
Aspreva Pharmaceuticals p16
ATS Health Services p8
B
Biogen Idec p10
Borger Plains Community Hospital p4
Bracco Diagnostics p16
Braff Group p9
Bristol-Myers Squibb p9
Brookside Assisted Living p8
BUPA p8
C
Canyon Creek Development p8
Computer Sciences Corp. p15
Concentra Network Care p8
CORA Health Services p8
Coram p1
Cornerstone Health Group p4
Crdentia Corp. p8
Critical Access HealthCare p4
Critical Care Systems p9
Critical Homecare Solutions p9
Cubist Pharmaceuticals p10
CVC Asia Pacific p8
D
DaVita p9
Deaconess Enterprises p9
E
Elan Corp. p15
Eli Lilly p16
Enpath p16
Excel-Tech p16
F
Family and Children’s Services p4
First Consulting Group p15
Franciscan Missionaries of Our Lady Health System p4
G
Galapagos p10
Galenica Group p16
Genetech p15
Gentiva Specialty Pharmacy p9
GlaxoSmithKline p10
Greatbatch p16
Guardian Healthcare p8
H
Haemonetics Corp. p16
Haemoscope Corp. p16
Health Care Services Corp. p8
Highland Capital Management p4
HomeChoice Partners p9
I
Illumigen Biosciences p10
Inverness Medical Innovations p8
J
Janssen Pharmaceutica p10
Johnson & Johnson p10
K
Kirin Brewery Company p16
Kyowa Hakko Kyogo p16
L
Louisiana HomeCare p4
Louisiana HomeCare of Lafayette p4
Louisiana HomeCare of Monroe p4
M
MacroGenics p16
McKesson Corp. p9
Medco Health Solutions p9
Medical People Health Services p8
Morgan Joseph & Co. p7
N
Natus Medical p16
New American Healthcare p4
O
Oncology Therapeutics Network p9
One Equity Partners p9
OptionCare p9
Orchid Cellmark p8
Our Lady of Lourdes Regional Medical Center p4
P
Pfizer p10
Providence Service Corp. p4
Q
Quality of Life Holdings p4
Quan Emerteq p16
R
Radiation Therapy Services p4
Raytel Cardiac Services p8
Raytel Medical Corp. p8
ReliaGene Technologies p8
Royal Philips Electronics p8
S
sanofi-aventis p10
Select Medical Corp. p8
Shelby Regional Medical Center p4
SHL Telemedicine p8
St. Francis Medical Center p4
Sunwest Management p8
Synta Pharmaceutical Corp. p10
T
TA Associates p8
Tenet Healthcare Corp. p4
Texas True Choice p8
The Bracco Group p16
U
UBS Investment Bank p16
V
Vestar Capital Partners p2
Viant Holdings p8
W
Wachovia Capital Markets, LLC p8
Walgreens p9
WhiteEagle National p8
Z
Ziegler Healthcare Consulting p4
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Health Care Acquisition Premiums--
Five-Year Study Shows Upward Trend
From 2004
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When negotiating an acquisition, dealmakers
have at their dis-
posal several methods for gauging a company’s worth and setting a purchase
price. Health care deals are commonly priced in terms of operational
figures, such as revenue or cash flow, giving rise to such well-known
multiples as price to revenue, price to EBITDA or price per unit, for
example, senior housing units, managed care enrollees or acute care
hospital beds. A complementary method, and somewhat less common, is to
value the target company as a function of its market capitalization (less
common since it does not apply to privately held or not-for-profit
targets). This method may suit a company which is publicly traded but
whose current operations do not reflect potential value, such as a
development-stage biotech with a promising drug candidate in late-stage
trials but without significant revenue. Or, it could involve a mature, but
underperforming company whose acquisition and revitalization would secure
a dominant market position for the buyer. In these and other instances,
buyers appeal to how the market values the beast, and price their offers
accordingly.
Conventional wisdom suggests that to acquire an existing business, the
buyer has to sweeten the pot to make it worth the seller’s while. This
so-called “acquisition” or “change-of-control” premium is calculated as a
percentage of the target company’s total value, generally taken to be its
market cap. In recent years, pundits have benchmarked the value of the
typical acquisition premium at about 20% above the price of the target’s
stock on the day before the acquisition announcement is made.
This practice assumes, of course, that news of the deal hasn’t been leaked
to the market, prompting others to buy and flip the stock in hopes of
making a quick profit on the acquisition premium. Problem is, bidding up
the price in such cases reduces the premium and motivation for sellers to
sell, and it pressures buyers to up the premium beyond what they are
willing (or able) to pay. Perhaps reflecting the belief that not all deals
can be kept under wraps until made public, some buyers calculate the
premium relative to the average closing price of the 10 or 30 or 60 prior
trading days.
How does the health care industry fare? We analyzed 188 deals with
acquisition premiums from January 2002 through September 2007. The median
values for each year appear in
chart on page 3 of the November issue of The Health Care M&A
Monthly. (The averages are higher, but we feel the medians are more
reflective of the market.) Three general trends emerge from the data.
First, premiums have been generally rising since 2004 as the bull market
and competition for deals gathered steam. Second, with the exception of
2003 and 2004, the median premiums for health care services companies tend
to fall below the median figure for all health care deals. Third, with the
exception of 2004 and 2007 year-to-date, the median figures for medical
technology deals show only a one percentage point difference from the
corresponding figure for all health care deals. The closeness of these
values is likely due to the fact that in any given year at least
three-quarters of all deals in our data set are in the technology segment.
Still, it also underscores the trend that the industry has been valuing
health care technology deals slightly higher than health care services
deals. Although we lack enough data points to guarantee their statistical
significance, some anecdotal results emerge from the data. First and
unexpectedly, financial buyers such as private equity groups have tended
to pay a lower premium than strategic buyers. Perhaps financial buyers are
simply better negotiators than their strategic counterparts. Second,
within the technology segment, biotech targets command a higher premium
than pharmaceutical targets which, in turn, command a higher premium than
medical device targets. The lead position for biotech deals may be partly
attributed to all the hype the industry has garnered as a panacea for
novel drugs and a source of replacements for mature drugs going off
patent. What is clear, though, is that health care deals command a higher
premium (28% for 2002 to the present) than the 20% figure commonly
ascribed to all sectors of the economy.
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