9,280 Deals Announced Worth $1.677 Trillion

New Year’s Eve saw the close of a remarkable decade of activity and dealmaking in the health care merger and acquisition market. The most recent ten years were marked by financial excess and financial success alike, depending on when you were active in the markets. Both the beginning and the end of the decade saw us climbing out of recessions, the most recent one being a generational doozy. Yet the health care M&A market remained robust throughout the period. The big success story that emerges from all this activity has got to be the consolidation within the health care technology sectors, which captured half of the past decade’s deal volume, but four-fifths of its dollar volume.  
The ten-year period from 2000–09 includes a total of 9,280 transactions, ranging in size from $1.00 to $74.0 billion. Based on recorded figures and not counting mergers, the combined value of these deals is a spectacular $1.677 trillion (our faithful desktop calculator had some issues with a figure that size). The deal and dollar volume reported for each year, along with the year’s relative ranking in the decade, appears in the table on page 20. While 2006 clearly stands out as the biggest year of the decade in health care M&A, both 2007 and 2009 are running neck and neck for second place, which is somewhat surprising because these two years mark our entry into and exit from the Great Recession. Our ranking is based on preliminary figures for 2009; we suspect that as the year progresses and we unearth further 2009 activity and prices from 10-Ks and other sources, 2009 will come to equal, if not surpass, 2007. So as bad as the period 2007–09 is currently perceived to be, the table on page 20 shows that it still performed better than the six-year period before 2006.
 Biotechnology, e-Health, Medical Devices and Pharmaceuticals together generated 4,655 deals (50% of the total) worth $1.32 trillion (79%). The nine sectors of the health care services industry, by contrast, accounted for 4,625 deals (50%) worth $356.9 billion (21%). Among individual sectors, the Medical Device sector posted the largest number of deals (1,494), followed by Pharmaceuticals (1,343) and Biotechnology (1,145). Within the services segment, the Long-Term Care sector captured the largest number of deals (934), followed by Hospitals (598) and Laboratories, MRI & Dialysis (461). The Laboratory sector was in a dead heat with Home Health Care, which posted 459 deals in the same period. The two laggards in  the services segment were Behavioral Health Care with 184 deals and Rehabilitation with just 144.
The chart on page 19 shows the percentage of dollars each individual sector captured during the decade. The Pharmaceutical sector posted $693.9 billion, or 41.4% of the total $1.677 trillion. It was followed by Medical Devices with $301.2 billion (18.0%) and Biotechnology with $294.7 billion (17.6%). Within the services segment, Hospitals posted $74.3 billion (4.4%) followed by Managed Care with $72.3 billion (4.3%) and Long-Term Care with $63.2 billion (3.8%). We note that $33.0 billion, or 44% of the total amount spent on Hospital M&A during the decade, may be attributed to a single deal, the privatization of HCA, Inc. by a consortium of private equity groups in 2006. Due to their individually meager results, the figures from four services sectors had to be aggregated: Behavioral Health, Home Health, Physician Medical Groups and Rehabilitation combined accounted for $18.9 billion, or 1.1% of the decade’s total M&A dollars.
In terms of decade-over-decade performance, only two services sectors fell against the prior decade, 1990–99: Physician Medical Groups (PMG) and Rehabilitation. In the prior decade, PMG had posted 1,235 deals worth $13.95 billion while Rehabilitation posted 354 deals worth $5.1 billion. Deal volume in the PMG sector thus dropped by two-thirds (67%) and dollar volume by 64%, largely as a result of investors abandoning the one-size-fits-all PPM model in the late 1990s that had led to unrealistic valuations, inflated prices and negative return on investment.
Blockbusters And Other Deals
During the ten years from 2000 to 2009, 20 deals were announced with a price tag of $10.0 billion or more. These involved the acquisition of nine pharmas, four biotechs, four medical device companies, one hospital company, one managed care company and one pharmacy benefits manager. Their combined value was $623.5 billion. While these blockbusters generally skew statistics, prompting us to rely on medians more than averages, they are important because they indicate what the market can bear in terms of financing for M&A activity. Though not typical, they tend to push the envelope for the rest of us.
During this same period, 226 deals were announced with prices in the range from $1.0 billion up to $10.0 billion; their combined value was $567.5 billion. In the next lower tier, from $500.0 million up to $1.0 billion, the cohort produced 212 deals worth $142.1 billion. Beneath that, there were 992 deals with a price from $100.0 million up to $500.0 million; however, their combined total was $222.5 billion. This upward spike of prices in an otherwise downward trend represents the niche that many investors and dealmakers have carved out in the middle market of health care M&A. Deals with prices from $50.0 million up to $100.0 million numbered 580; their combined value was $40.8 billion. The number of deals valued from $10.0 million up to $50.0 million was 1,918; their combined value was $45.8 billion. This second upward spike away from the downward drift may be attributed to intensive acquisition activity by smaller companies, largely in the services segment, that focus on local or regional markets, rather than national or international ambitions. Finally, there were 2,326 deals with prices from $1.00 up to $10.0 million, whose combined price was $9.1 billion.
The M&A market for 2000–09 thus proved to be a capacious one, allowing many different participants focused on different niches and business goals. Going forward, we believe that there will continue to be broad scope for robust M&A activity in the health care industry. Despite the recent economic turmoil, the drive to contain costs, expand market share, achieve a competitive advantage—all of which can be secured through a merger or acquisition—as well as other motivations for deal making, are not going to disappear. In fact, this turmoil has only sharpened the need to undertake deals. One important strand we see in future M&A is the continuing march of globalization, which will provide plenty of opportunities for cross-border expansion during the next decade. Rather than go to the expense and headache of setting up de novo operations in untapped global markets, companies will enter them by acquiring existing local operations, particularly companies involved in the various health care technology sectors. Though the psychological aftermath of The Great Recession has many viewing the glass of business opportunity as half empty (paralleled by the plethora of disaster movies in popular culture), we believe that the actual figures and fundamentals of this market better support a glass-half-full interpretation. In the decade to come, we anticipate  continued, strong and broad-based merger and acquisition activity in the health care industry.