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 October
2008 issue
M&A Meets The Credit Crunch--
Turmoil in Market Sparks Creativity to Get Deals Done
Turmoil in the capital markets has
made itself felt throughout the economy and markets, including the health
care M&A market.
Read here to see what particular financial challenges are facing the M&A
market and how dealmakers are responding to them.
...
Third Quarter
2008 M&A Results--
251 Deals Announced Worth $88.7 Billion
The health care industry announced 251 mergers and acquisitions in the third
quarter of 2008. Based on revealed prices, a total of $88.7 billion was
committed to finance these deals.
Preliminary results show that despite contracted credit, 2008 is set to rank
among the top three years for health care M&A.
...
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
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Articles Archive
Companies Mentioned in this issue:
October 2008
A
Abington Memorial Hospital p4
Adventist Health p4
Agfa-Gaevert p15
Allscripts Healthcare p9
Alpharma p16
Amedisys p3
AOL p10
Applied Biosystems p9
ARCA biopharma p9
Arcapita p7
Asante Partners p10
B
Ball Memorial Hospital p4
Bank of America, NA p4
Blackford Community Hospital p4
Bristol-Myers Squibb p16
BTG Plc p10
C
Cambridge Realty Capital Companies p1
Canton-Inwood Memorial Hospital p4
Cape Fear Valley Health System p3
Cardinal Health p10
Cardinal Health System p4
Cellzome AG p9
Center for Molecular Medicine p4
Central Montgomery Medical Center p4
Charles River Laboratories International p8
CIT Healthcare p4
Clarian Health p4
Clarix, LLC p8
Covington Associates p8
Critical Homecare Solutions p3
CryoCath Technologies p10
D
Daiichi Sankyo p16
Datascope Corporation p10
Dental Art Laboratories p4
E
Eli Lilly & Co. p16
Everyday Health p10
G
Getinge AB p10
GlaxoSmithKline p9, p16
Goldman Sachs p15
Governor and Company of the Bank of Ireland p9
H
Harris Williams & Co. p10
Health Care REIT p7
Holisticare, LLC p2
Home Health Corporation of America p3
HSBC Bank PLC p9
I
ImClone p16
Invitrogen Corp. p9
J
Jackson County Board of Health p3
Jefferies Finance LLC p3
K
Keating Investments p9
King Pharmaceuticals p16
Kowa Co. p16
L
Lazard p15
Lehman Brothers p9
Lehman Brothers Finance, SA p16
LHCG Group p3
L’Oreal p16
M
Marketing Technology Solutions p10
MBF Healthcare Acquisition Corp. p3
Medicalodges p7
Medivation p15
MedSystems p10
Medtronic p10
Michael Reese Hospital p4
MIR Clinical Services p8
Misys Healthcare p9
Molecular Imaging Research, Inc. p8
Mountaineer Home Health p3
N
National Dentex p4
Novacea p9
Nuvelo p9
O
Oxford BioMedica Plc p10
P
Perseus, LLC p14
Pfizer p15
Pharsight Corporation p8
Phase Forward p8
Pioneer Behavioral Health p8
Pivotal Research Centers p8
Protherics PLC p10
Q
QualityHealth.com p10
Quest Diagnostics p16
R
Ranbaxy Laboratories p16
Reliant Technologies p15
RevolutionHealth Network p10
Rothschild p10
Royal Bank of Scotland PLC p9
S
Sanford Health p4
sanofi-aventis p16
Schering-Plough p9
Sciele Pharma p15
Senior Living Investment Brokerage p8
Sequenom p4
Shionogi & Co. Ltd. p15
Skilled Healthcare Group p7
SolAmor Hospice Corporation p2
South Coast Medical Center p4
Spectrum Health p4
Stifel Nicolaus p4
SummitRidge Hospital p2
Sun Healthcare Group p2
Sun Pharmaceutical Industries p16
Sunrise Senior Living p7
T
Taro Pharmaceutical Industries p16
Teva Pharmaceutical p16
Teva-Kowa Pharma p16
Thermage p15
Thomas Weisel Partners, LLC p8
Total p16
Transept Pharmaceuticals p9
Tripos International p8
U
UBS Investment Bank p15
Universal Health Services p2
V
ValueAct Capital p9
Van Andel Research Institute p4
Vector Capital p8
Viasys Healthcare p10
Vintage Park p7
W
Waterfront Media p10
West Tennessee Healthcare p3
Z
Zentiva p16
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M&A Meets The Credit Crunch--
Turmoil in Market Sparks Creativity to Get Deals Done
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Email Editor
Turmoil
in the capital markets, building for a year, has made itself felt
throughout the economy. Although the health care merger and acquisition
market has proved its mettle during the past year, it has not remained
wholly impervious to the contraction of credit. Over the past few months,
we have discussed a number of ways in which the M&A market has responded
to the credit crunch. September’s deal activity illustrates the ways these
different factors continue to influence the market, and how dealmakers are
responding to meet them.
Health care sectors
involving real estate, such as Hospitals and Long-Term Care, have seen a
decrease in activity from a year ago, as might be expected from the
general decline in real estate values. Yet, there seems to be the will to
get deals done. Cambridge Realty Capital Companies tells us that
the number of senior housing/health care borrowers initiating loan
origination requests remained on an even keel during August, when it
received 33 loan requests totaling $450.6 million. The problem dealmakers
face is the tortuous process of "price discovery," in which the markets
work to determine what a reasonable valuation is. Uncertainty in the
markets is doing little to narrow the gap between what buyers are willing
to pay and sellers are willing to accept.
Accessing the capital needed to get deals done has sent
some dealmakers scrambling. In March, Allscripts Healthcare
(NASDAQ: MDRX) and Misys Healthcare (LSE: MSY) committed to a
$330.0 million merger in which Misys would acquire a 54.5% share in MDRX.
Ex-investment bank Lehman Brothers (PK:LEHMQ) had agreed to lend
MSY $305.0 million for the deal, but that tap was turned off when Lehman
filed for bankruptcy on Sept. 14. After two weeks of wracking its brains
and its nerves, MSY was able to cobble together a new funding package. It
is borrowing $175.0 million from its largest shareholder, ValueAct
Capital, and $150.0 million from a revolving credit facility from
HSBC Bank PLC, the Governor and Company of the Bank of Ireland
and The Royal Bank of Scotland PLC. Completion of financing is now
seen to be such an important milestone that many companies are issuing
press releases trumpeting events that used to be taken for granted a year
ago. Invitrogen Corp. (NASDAQ: IVGN), for example, recently
announced it had completed syndication of the financing for its $6.7
billion acquisition of Applied Biosystems (NYSE: ABI).
Over the past year, companies and their financial backers
have not been able to count on the drowsy, if not dormant IPO market to
raise capital. Sales from a smaller to a larger private equity group,
going up the food chain, have been common, as have been reverse mergers,
often with publicly traded corporate shells. (Brian Keating of Keating
Investments has observed that reverse mergers have increased in
popularity and frequency so much over the past year that the cost of
corporate shells has increased.) Novacea (OTCBB: NOVC), a small
pharma company, is undertaking a reverse merger with Transept
Pharmaceuticals, a specialty pharma. In effect, this deal throws a
lifeline to NOVC after Schering-Plough (NYSE: SGP) ended a
collaboration agreement in April for developing a prostate cancer drug.
The combined Novacea-Transept will have a cash horde of between $88.0
million and $92.0 million. For its part, Transept benefits by going public
and funding the final stages of its Intermezzo sleep drug. In
another display of creative financing, ARCA biopharma, a private
company that makes cardiovascular treatments, is acquiring Nuvelo
(NASDAQ: NUVO), whose blood clot-dissolving drug failed earlier this year.
ARCA is primarily targeting NUVO’s $76.0 million in cash. And who knows?
ARCA might be able to sell off NUVO’s technology and recoup some of the
acquisition costs.
As the dollar falters against other currencies, foreign
buyers are capturing a larger share of the U.S. health care M&A market.
Due to a sagging domestic economy, a shrinking population and largely
untouched by the subprime crisis, Japan’s companies have been placing
their M&A dollars overseas. The first half of 2008, for example, saw a
total of $24.0 billion in outbound acquisitions. In this environment,
strategic buyers are faring better than financial buyers because banks are
leery about lending to financial buyers. As noted in our third quarter
results, the dollars committed to health care M&A in Q3:08 totaled $88.7
billion. Among the top 20 deals of the quarter, $74.9 billion was spent by
foreign buyers and only $5.8 billion by domestic buyers. This reverses the
historical relation in which domestic buyers outspent their foreign
counterparts; for example, in Q4:06, when $82.4 billion was spent on
health care M&A, within the top 20 deals, domestic buyers spent $61.7
billion and foreign buyers just $5.6 billion.
Despite these considerable constraints on M&A activity,
the third quarter figures suggest to us that dealmakers and investors
remain confident both in the viability of the health care M&A market and
in their continued ability to make money and enhance value in this market.
Taking a longer perspective, we believe that the challenges it poses will
be met, the opportunities it offers will be pursued and the potential for
making money will be realized.
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