Stephen M. Monroe, Partner
Sanford B. Steever, Editor
Fax: 203-846-8300
Dollars Spent On Health Care Services M&A Doubled In 2006, According To Irving Levin Associates, Inc.
NORWALK, CT – March 12, 2007 – Merger and acquisition activity in the health care industry’s service sectors posted increases in both transaction volume and dollars spent during 2006. A total of 534 deals were announced in nine sectors of the health care services industry, up slightly from the 527 deals announced in 2005. However, the dollar value of those deals, based on revealed prices, rose a dramatic 96% from $46 billion in 2005 to $90 billion in 2006. “The M&A market for health care services has grown steadily after bottoming out in 2003. A surfeit of capital seeking investments, low interest rates and a stable, growing economy have all combined to propel this activity,” commented Sandy Steever, editor of The Health Care Acquisition Report, Thirteenth Edition. “Most of the dollar volume of activity came from eight billion-dollar transactions, totaling $70 billion, which represents 78% of all dollars spent on health care services M&A. Four of the eight were led by financial buyers such as private equity firms, pension fund managers and real estate investment trusts,” continued Mr. Steever.
In particular, the hospital acquisition market showed continued improvement after the ten-year low of 2003. Fifty-seven transactions were announced in 2006 involving 249 hospitals with a combined 54,550 beds (including three long-term, acute-care facilities with 130 beds). This represents a notable increase from 2005 when 50 deals were announced involving 88 hospitals and 11,294 beds. These results, however, were influenced by one deal, the $33.0 billion privatization of industry leader HCA by a consortium of private equity firms, which involved 176 hospitals with 41,850 beds. Hospital pricing in 2006 declined with average and median price-to-revenue multiples of 0.74x and 0.66x, respectively, a drop from the corresponding 2005 figures of 1.17x and 0.79x, but still above their 2004 counterparts of 0.61x and 0.53x. Pricing in 2006, as in 2004, was depressed by the presence of bankrupt, shuttered or otherwise financially distressed facilities; 16% of all 2006 hospital deals involved such hospitals. By contrast, 2005 saw more high-quality properties come on to the market.
In other highlights, service industries related to the development and the distribution of pharmaceuticals saw robust M&A activity in 2006. The year recorded 21 transactions targeting contract research organizations and similar businesses related to the development of new drugs and medical procedures; their combined value was $563 million. At the other end of the supply chain, the pharmacy benefits management and specialty pharmacy sectors posted a combined total of 18 deals worth a $21.5 billion. Pharmacy benefits manager Caremark Rx continues to capture headlines in 2007 as competitor Express Scripts’ challenge to CVS Corporation’s $21.0 billion bid, announced in 2006, drives the price higher. “With the industry capturing a larger percentage of GDP each year, investors will naturally direct more of their dollars to acquisitions of promising health care businesses,” commented Stephen M. Monroe, a partner at Irving Levin Associates. “For example, real estate investors with little previous experience in the senior care industry have been pursuing and acquiring long-term care facilities, particularly high-end properties, with increasing zeal in the past two years.”
The Health Care Acquisition Report, Thirteenth Edition, contains more than 200 pages of hard-to-find information on all publicly announced hospital, managed care, laboratory services, physician medical group, behavioral health, rehabilitation and other services mergers and acquisitions in 2006. Two other services sectors, long-term care and home health, are treated separately in The Senior Care Acquisition Report, Twelfth Edition. Irving Levin Associates, Inc. is a Norwalk, Connecticut-based research and publishing firm specializing in health care investments. The firm has more than 50 years experience in the health care and seniors housing acquisition market. The Health Care Acquisition Report, Thirteenth Edition, may be purchased for $595 by calling 800-248-1668 or logging in at
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