The Health Care M&A Monthly: M&A Results for The Fourth Quarter of 2000

In the fourth quarter of 2000, the health care merger and acquisition market was dominated by the four technology and product-oriented sectors that we began covering last fall. With a combined total of 143 deals, the e-Health, Medical Device, Biotechnology and Pharmaceutical sectors accounted for 62% of all M&A activity.
By comparison, the remaining nine service sectors we traditionally cover accounted for just 88 deals, or 38% of the quarter’s total activity.
Because the universe of sectors and companies we cover has expanded, direct statistical comparisons with previous quarters becomes a case of apples and oranges. What the table below makes clear, however, is that these “technology” sectors are attracting the lion’s share of investor’s attention in the health care industry.
With 42 deals, the e-Health sector tallied more transactions than any other single sector. But a number of the deals involved sales by financially distressed businesses, some on the verge of running out of cash. The largest e-Health deal was $180 million. By comparison, the Medical Device sector, with 41 transactions, had five deals with price tags of $180 million or more. Of the 26 deals announced in the Pharmaceutical sector, four came with price tags of $1 billion or more. The Biotechnology sector, as befits a newer, less seasoned industry, did attract its share of investor interest with 34 deals, but recorded only one worth $100 million or more.
The health care services industry paint a less rosy picture: the 88 transactions represent a 32% decline from the third quarter of 2000 and a 42% drop from the fourth quarter of 1999. Only three sectors, Hospitals, Managed Care and Behavioral Health, saw a rise in deal volume over the previous quarter. But in stark contrast, all three posted declines against the corresponding year-ago figures. The Hospital sector tallied the greatest number of deals among the service sectors, reflecting the good health of the stock of publicly traded hospital management companies.
The Managed Care sector will keep posting a stream of deals as this sector continues to impact the nation’s health care delivery system. First, managed care organizations (MCOs) will craft deals among themselves for strategic reasons. Second, as our Deal of the Month suggests, other, more traditional insurers, such as Blue Cross Blue Shield plans will also enter this market as they acquire more of the appearance and techniques of MCOs.
Once a superstar in the health care M&A market, the Physician Medical Group sector (65% decline in deals) has reached its lowest level ever. With just eight deals, it dipped into the single digits to join the post-acute sectors of Home Health (-83%) and Rehabilitation (-75%), both of which have almost dropped off the map.
For the next four quarters or so, our figures and charts will reflect the split of the health care M&A market into services and technology sectors. Not only will this allow us to make comparisons of the service sectors with activity in prior periods, but it will also allow us to better chart the investment currents within the industry.
Some years ago, we introduced our readers to the notorious ancient Chinese curse, “May you live in interesting times.” Little did we know then that the succeeding years and markets would prove to be more and more interesting, particularly for the investment community. Rumors of a market meltdown, however, are belied by the continuing interest in the health care industry, and the investment opportunities it poses. What some see as a curse, others may see as a blessing.