Stephen M. Monroe, Partner
Sanford B. Steever, Editor
Phone: (800) 248-1668
Fax: (203) 846-8300
NEW CANAAN, CONNECTICUT — February 25, 2000 – Fewer U.S. physicians and medical practices were affected by mergers and acquisitions in 1999 than in 1998, the lowest number since 1995. A total of 134 mergers and acquisitions of physician medical groups were announced in 1999, according to Irving Levin Associates, a health care research and publishing firm.
The firm’s publication, The Physician Medical Group Acquisition Report, Fifth Edition, showed that 202 practices and organizations were merged or acquired last year, affecting 9,750 physicians. Compared to the 1998 market, 1999 represents a 48 percent decline in deals and a 45 percent decrease in the number of organizations targeted.
In 1998, 23,890 physicians were affected by mergers and acquisitions. Last year the lowest number of deals was reported since 1995, when only 132 transactions were announced and affected 203 groups and 8,832 physicians.
“The investment community has fled from health care services and from the physician medical group sector in particular, withdrawing its capital for further acquisitions and growth,” said Stephen Monroe, managing editor of Irving Levin Associates.
“The ranks of physician practice management companies-or PPMs-have been decimated, some through bankruptcy and some through flight to more profitable lines of business,” he added. “Others were taken private to escape the vagaries of the markets.”
This is reflected, said Monroe, in the fact that for the first time since 1994, privately held groups acquired 70 percent of physicians in 1999, as compared with 30 percent in 1998. The importance of publicly traded companies as acquirers declined during the year. Publicly traded PPMs became the major source of practices targeted. In 1999, PPMs undertook 32 deals to divest a combined total of 6,111 physicians, or 63 percent of the year’s total, according to the report.
Despite the retreat of investment capital from this sector, the fundamentals remain in place for continued consolidation, according to Sanford Steever, editor of the report. Even with the drop in M&A activity for the year, the physician medical group was the single most active sector within the health care services industry.
“As the market recuperates-and it will be a slow recovery-the single specialty PPMs will lead the way,” Steever added. Two specialty PPMs, AmeriPath, concentrating on pathology practices, and Pediatrix, concentrating on neonatal practices, announced 20 transactions between them in 1999.
“The successful PPM will be the one that not only acquires well-placed practices, but also makes the transition to providing good management services and adding value to the practices they have affiliated. They’ll utilize looser forms of affiliation, purchase fewer assets, offer shorter-term management contracts and spend more time in due diligence.”
Irving Levin Associates, Inc. is a New Canaan, Connecticut-based research and publishing firm specializing in health care investments. The firm has 50 years of experience in the health care acquisition market. To obtain a copy of The Physician Medical Group Acquisition Report, Fifth Edition, call 1-800-248-1668.
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