A Total Of 249 Deals Announced Worth $34.0 Billion

The first quarter of 2012 saw a strong merger and acquisition market in the health care industry. Based on preliminary figures, a total of 249 deals were announced in 13 sectors worth a combined total of $34.0 billion. While the nine services sectors garnered the majority of the deal volume, the four technology sectors took the lion’s share of dollar volume.

The health care services sectors produced 136 transactions, or 55% of the quarter’s total deal volume, with the technology sectors accounting for the remaining 113 transactions (45%).  Certain sectors, however, captured more deals than others. The three most active sectors together represented 103 deals, or 41% of the total, including Medical Devices with 43 deals, Long-Term Care with 34 and Biotechnology with 26. (With 26 deals of its own, e-Health tied with Biotechnology in deal volume, but not dollar volume.) By contrast, certain services sectors proved to be laggards, with Rehabilitation, Behavioral Health Care and Managed Care eking out just four, five and six deals, respectively.

The first quarter’s deal volume fell 4% from the previous quarter, Q4:11, but was virtually equal with the deal volume in the year-ago quarter, Q1:11. The contribution of each sector to the overall deal volume, along with comparisons to the previous and year-ago quarters, appears in the table opposite.

A total of $34.0 billion was spent to finance the first quarter’s 249 deals. Of that amount, $25.6 billion, or  three-quarters of the total amount, comes from the technology segment while the remaining $8.4 billion (25%) comes from the services segment. Biotechnology led with $10.2 billion, followed by Medical Devices with $8.8 billion and Pharmaceuticals with $5.9 billion. Among the individual services sectors, only Long-Term Care broke the billion-dollar mark, posting $1.6 billion. Due to their individually negligible results, the figures from three services sectors had to be combined. The chart on the back page presents the percentage contribution of each sector to the quarter’s total dollars committed.

The quarter produced a total of seven billion-dollar deals, worth a combined total of $15.9 billion, or 47% of the total amount. This figure represents a departure from our usual results when the billion-dollar cohort generally captures 65% or more of the total quarterly dollar volume. There were 12 deals with values from $500.0 million up to $1.0 billion, worth a combined $8.5 billion. And in the range of deals from $100.0 million up to $500.0 million, there were 29 deals worth $8.0 billion. What this tells us is that the middle market remains the most active segment of the health care M&A market.

The first quarter’s results, we believe, may well set the trend for the remainder of the year. Deal volume is on track to rival last year’s figure of approximately 1,000. Further, the majority of activity is likely to take place in the middle market, out of sight of the general media. Any reticence in the market may be traced to election-year jitters and, perhaps, the Supreme Court’s review of the Affordable Care Act, both of which tend to increase uncertainty about the future direction(s) of health care and, therefore, to lengthen the period of due diligence. The absence of a large increase in deal volume in both the Hospital and the Physician Medical Group sectors from Q4:11 to Q1:12 may be a sign that acute care and doctor organizations are currently holding back, reassessing whether they should develop accountable care organizations through M&A, given the possibility that the ACA may fall. They may conclude that there is strength in numbers and that the absence of the Act will ultimately (and ironically) accelerate the growth of de facto ACOs to meet an increasingly challenging and hostile financial environment for health care………Want to read more? Click here for a free trial to The Health Care M&A Information Source and download the current issue today