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 April
2008 issue
First Quarter 2008 M&A Results--
219 Deals Announced Worth $27.1 Billion
A total of 219 mergers and
acquisitions were announced in the health care industry during Q1:08. Based
on prices revealed to date, a total of $27.1 billion was spent to finance
them.
Read the issue to see an example of the kinds of deals that have been made
available to potential buyers and investors in the current, challenging
acquisition market.
...
The Hospital M&A
Market--
New Report Shows Values Down Slightly In 2007
A new report from Irving Levin Associates analyzes the recent M&A market for
Hospitals and allied health services sectors.
Despite the departure of most financial buyers from the market, results show
that salient hospital acquisition multiples have declined only slightly from
2006 to 2007.
...
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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Read more about
The Health Care M&A Monthly.
Articles Archive
Companies Mentioned in this issue:
April 2008
A
Abbott Laboratories p16
Advanced Medical Partners p9
Allion Healthcare p9
Allscripts Healthcare Solutions p14
Allscripts-Misys Healthcare Solutions p14
Almost Family p4
Ambulatory Services of America p8
Amerita p9
Amgen p16
Apex Home Healthcare Services p4
Applied Biosystem p10
Arthorcare p16
Assisted Living Concepts p3
Avecia Biologics p10
AVI BioPharma p10
B
Bentley Pharmaceuticals p16
BioArray Solutions p16
Biomed of America p9
Boston Avenue Capital LLC p8
Braff Group p4
Brevard Kidney and Hypertension Center p8
Broad Oak Partners p10
C
Canyon Creek Development p8
Capital Senior Living Corp. p8
Cardinal Health p9
Carlyle Seniors Housing p8
Centene Corp. p8
Chestnut Ridge Primary Care p9
CIT Capital Securities LLC p9
Community Health Systems p1, p7
CPEX Pharmaceuticals p16
CreditSuisse p16
Crown Pointe Retirement Community p8
CRT Capital Group p7
D
Datascope p16
Dayton Heart Hospital p7
DiscoCare p16
Docpharma p16
Doctors Hospital p4
DRI Capital p10
E
Eastdil Secured p8
Endo Pharmaceuticals p16
Enturia, Inc. p9
Ercole Biotech p10
Excela Health p9
Extendicare REIT p3
F
Ferrer Freeman and Company p9
Floyd Medical Center p7
G
Global Med Technologies p14
Goldman Sachs p16
Good Samaritan Hospital p7
H
HCA, Inc. p1
Health Management Associates p7
HealthTronics p9
Highland Capital Management LP p10
Home Care Connections p4
Hoya Corp. p14
Humana p8
I
Immucor p16
Inlog, SA p14
IV Solutions p9
J
Johnston Memorial Hospital p7
L
LHC Group p4
M
Marcus & Millichap p8
Matrix Laboratories p16
Matthes Capital Management p8
MedCath Corp. p7
Medical Center Hospital Authority p4
Mindray Medical p16
Misys Healthcare Systems p14
Misys plc p14
Mountain States Health Alliance p7
N
Nanogen p10
Novant Health p8
Novartis p16
O
Olympus p14
OSF Health Plans p8
OSF Saint Francis p8
P
PDL BioPharma p10
Pentax Corp. p14
Pfizer p16
Pharmacia p16
PharmAthene p10
Piper Jaffray p10
Presidio Pharmaceuticals p10
Progenitor Cell Therapy p10
Psychiatric Solutions p4
R
Radiation Oncology Services of America p8
RehabCare p7
Renal Advantage p8
Rivercrest Home Health Care p4
Russell County Medical Center p7
S
Senior Living Investment Brokerage p8
Southern Ocean County Radiation Oncology p8
StemCells p10
Sunrise at Simi Hills p8
Sunrise Senior Living p8
T
Takeda Pharmaceutical p16
TAP p16
Tenet Healthcare Corp. p3
Teva Pharmaceutical p16
The Celtic Group p8
The Provident Group p8
The Specialty Hospital p7
Triad Hospitals p1
U
United Medical Corp. p4
V
Vintage Senior Housing p8
W
Welsh, Carson, Anderson & Stowe p8
West Creek Capital LLC p8
Westland Convalescent and Rehab Center p8
Wyeth p16
X
XTL Biopharmaceuticals p10 |
First Quarter 2008 M&A Results--
219 Deals Announced Worth $27.1 Billion
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Email Editor
As
might be expected from the recent turmoil in the credit and financial
markets, during the first quarter of 2008 merger and acquisition activity
in the health care industry slowed from the torrid pace it had been
running in 2007. A total of 219 transactions were announced in the 13
sectors of health care we cover, down 27% from the 301 deals announced in
the previous quarter (Q4:07) and down 8% from the 237 deals in the
year-ago quarter (Q1:07).
The technology segment
garnered 113 deals, or 52% of the quarter’s total deal volume, while the
services segment posted the remaining 106 deals. The top three individual
sectors combined, Medical Devices (35), Pharmaceuticals (34) and
Biotechnology (29), accounted for 98 deals, or 46% of the total. At the
other end of the spectrum, the three individual sectors with the lowest
deal volume, Managed Care (7), Rehabilitation (6) and Behavioral Health
Care (3), accounted for just 0.7% of the quarter’s total. The contribution
of each individual sector to the quarterly total appears in the
table on page 3 of this month's
issue.
Based on prices revealed to
date, a total of $27.1 billion was spent to finance the first quarter’s
M&A activity. This figure represents a 50% decline from the $54.6 billion
spent in the previous quarter, Q4:07, and a 58% decline from the $64.4
billion spent in Q1:07.
The technology segment captured $22.6
billion, or 83% of the quarterly total, in Q1:08, with the services
segment accounting for the remaining $4.5 billion (17%). The contribution
of each sector to the total amount appears in the chart on page 9. All
four of the technology sectors outspent the nine services sectors; four of
the latter sectors are aggregated in the chart due to their meager
individual results.
The quarter saw eight billion-dollar
deals worth a combined total of $14.8 billion. All but one were in the
technology sector; the last one was in Home Health Care. This is clearly
off the pace set in 2007 when billion-dollar deals appeared at the rate of
one per week.
These results clearly point
to the fact that the M&A market in early 2008 has declined from the
record-setting peaks of activity reached in 2006 and 2007. The annualized
deal volume of 850 transactions projected for 2008, the lowest in five
years, is down from the 1,051 high set in 2007. The number of
billion-dollar deals, annualized for 2008 at 32, is down from the 35 in
2006 and the 50 in 2007, but still above the 27 announced for both 2004
and 2005. But the dollar volume, annualized at approximately $108.0
million, is way off the $268.4 billion in 2006 and the $226.5 billion in
2007, the largest and second-largest years, respectively, ever recorded.
The figure projected for 2008 is higher, however, than the $94.1 billion
that was actually spent on health care M&A in 2003 as the market worked
its way out of the (last) recession.
Beyond The Numbers
So what are we to make of
these figures? The health care M&A market appears to be in a trough, but
the figures still suggest that the situation is not as dire as the
recession of 2001-2003. We all know that borrowing has become more
difficult, that real estate has become more illiquid and that financial
buyers are largely sitting on the sidelines. But we also know that the
health care industry is about as close to anti-cyclic as you can get, that
the industry remains fragmented and ripe for consolidation and that money
is still available for deal making. Companies still want to grow, and they
will pursue deals if that advances their strategic goals. As we have been
urging in the past few issues, the market is going through a process of
"price discovery" to find out what this new market will bear in terms of
valuations.
Price discovery applies not just to
the stock market but to other markets as well, notably real estate. Health
care businesses with a substantial real estate component, such as
Hospitals and Long-Term Care, are seeing a slowdown in M&A activity. This,
we feel, reflects the fact that since real estate is more illiquid than
shares of stock, price discovery takes longer to work out in real estate.
But as the markets move toward some equilibrium, at some point, the value
drops to a point where it becomes very hard to ignore the bargains. It’s a
truism that deals—and money—can be made in bear markets as well as in bull
markets. The trick, of course, is knowing all you can about your market.
Opportunity Or Challenge?
Assisted Living Concepts
(NYSE: ALC), an operator of assisted living
facilities, is a case in point. Spun out from Extendicare REIT (PK:
EXETF) in November 2006, ALC stock, "when issued," traded in the $8.25 to
$8.75 range, then dropped to a low of $7.44 per share once it began to
officially trade. In early 2007, during the takeover frenzy, it topped
$13.00 per share. When it entered a trading range of $10.00 to $13.00 per
share, it began to be seen as a takeover candidate by hedge funds and
others, who in those halcyon days believed they could leverage the real
estate (ALC owns 75% of its properties) and, as a result, get the company
for a bargain. A few months later, and ALC’s stock is trading at about
$5.50 per share. So where are the buyers who thought it was a bargain at
$10.00 a share, now that it is at $5.50? True, the hedge funds are licking
their wounds from a challenging first quarter, but can investors really
avoid the bargain ALC now presents, we wonder, because there is some real
upside value.
Once the math is done,
adding outstanding debt to the market cap and capitalizing leases, ALC is
valued at about $100,000 per (assisted living) unit. This is significantly
lower than the replacement cost, which has been calculated at about
$125,000 per unit. But there is more potential upside hidden here:
occupancy was nearly 85% when ALC was purchased by Extendicare in 2005;
now it is closer to 74%. Remarkably, EBITDAR growth has remained flat for
three years while occupancy has declined by more than 10 percentage
points. If occupancy can be increased, obviously so can EBITDAR. The
decline in occupancy is due in part to management’s decision to "disenroll"
from as many Medicaid waiver programs as possible with an eye to replacing
them with more lucrative private pay. However, private pay increases have,
so far, fallen well short of replacing the lost Medicaid census. Sooo, one
big problem a potential buyer of ALC will have is determining whether
current management can execute this replacement strategy in a timely
enough fashion to make investment sense, whether they will have to find
new management who can do so or whether it can be done under any
management. That’s a big decision to make in a market as skittish as this
one, but because it is trading at lower than replacement value, ALC still
looks like a bargain to us. A disciplined acquirer will find a way to use
the market to his or her advantage, and not be knocked around by the
market. |
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