The Health Care M&A Monthly: Back in Business? M&A Activity Surges at Year’s End

The fourth quarter capped 2002 with a surge of M&A activity not seen in four years. A total of 286 transactions were announced in 13 sectors of the health care industry. Although some of this volume may come from dealmakers’ desire to close deals and improve earnings and balance sheets before year’s end, this looks like a market on the rebound.
The fourth quarter’s 286 transactions represent a 38% increase over the previous quarter’s 208 deals (Q3:02) and a 40% increase over the 204 announced in the year-ago quarter (Q4:01).
Totaling 154 deals, the health care technology segment accounted for 54% of the Q4:02’s activity. This represents a reversal from Q3:02 when technology had only a 48% share of the transaction volume and Q4:01 when it had 44%.
Each of the four technology sectors posted gains over the previous and year-ago quarters. Compared with the services segment, which had mixed results, this suggests that technology sectors like Pharmaceuticals and Medical Devices will be the drivers of the M&A engine in the coming year. In fact, the three most active sectors in Q4:02, with a combined 134 deals, or 47% of the quarter’s total, were based in technology: Pharmaceuticals, Medical Devices and Biotechnology.
Five of the nine health care services sectors posted increases over Q3:02, but only four did so against Q4:01. Only Long-Term Care, Laboratories and Hospitals broke into double digits in Q4:02; their combined deal count represented just 19% of the quarter’s total.
The fourth quarter accounted for 30% of the year’s total 943 transactions. Q4:02’s is the highest deal volume since the 281 deals announced in Q3:98, but still short of the record 325 deals in Q2:98. The comparison is not entirely legit, of course, since back then we tracked only the nine sectors of health care services. Of interest, however, is the fact that out of the 325 deals in Q2:98, worth about $11.4 billion, 78 were in the Physician Medical Group sector; out of the 281 in Q3:98, worth $5.7 billion, 60 were in that sector. How the times—and the markets—have changed.