Four Billion-Dollar Deals Jumpstart April’s M&A Market
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The magic of Merger Monday made a brief but spectacular reappearance during the second week of April, recalling those heady days when any company was considered fair game and money was no object. The five-day period from the 7th through the 11th of the month saw the appearance of four billion-dollar deals, with two announced appropriately enough on Monday. Two were in Medical Devices, one in Biotechnology and one in e-Health. Given the current uncertainty in the financial and credit markets, the health care M&A market has proven itself to be quite resilient with a total of 83 deals announced during the month. The four health care technology sectors account for 47 deals, or 57% of the month’s total, with the nine health care services sectors accounting for the remaining 36 transactions.
Based on prices revealed to date, a total of $57.0 billion was committed to finance April’s M&A activity in the health care industry. The combined dollar value of the four billion-dollar deals was a robust $50.9 billion, or 89% of the total amount spent to fund April’s 83 deals. Eighteen deals were announced in the middle market with prices ranging from $100.0 million up to $1.0 billion; their combined value was $5.8 billion. Finally, 14 deals were announced with prices ranging from $300,000 to $99.9 million; their combined value was $330.5 million. These figures suggest that, despite the spectacular sums being dispensed in the somewhat fickle billion-dollar market segment, the middle market of the health care M&A industry remains the focus of much deal making.
Due to the presence of four mega-deals in the mix, the average price per transaction weighed in at a whopping $1.54 billion while the corresponding median was $165.0 million. These figures stand well above the whole-year 2007 figures of $312.0 million and $35.0 million, respectively. Recognizing that we are comparing apples to apple slices here, we expect the distorting effect of April’s spike in prices to be moderated as more usual deal activity accumulates during the year.
Despite rumors of its premature demise, private equity figured in April’s health care M&A market. Six financial buyers, five of which were private equity shops, announced acquisitions in April, totaling $2.567 billion, or roughly 5% of the month’s total. The remaining 95% was committed by the strategic buyers who have always constituted the lion’s share of acquirers in health care deals. What appears to be gone from the market is the knee-jerk LBO where the buyer loads a target up with debt, siphons off the interest, sells off the real estate or financially weaker units and generally remains aloof from operations until it hits upon an exit strategy that principally benefits investors. Leveraged buyouts are still in evidence, to be sure, but PEGs are taking care to fine tune their investments to meet the specific needs of the target companies. More often, they are now making equity investments in healthy companies with good growth potential and hitching their fortunes to that of the company; consequently, they are working more closely with management to grow a solid business.
We could not expect the market to maintain its brisk pace through the rest of the month. But the fact that deal makers were able to craft these mega-transactions in the current market should give investors some comfort that their faith and dollars are not misplaced in health care.
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