NORWALK, CT – January was a record month for healthcare merger and acquisition activity with 95 deals worth a combined total of $17.2 billion being transacted, according to a recent report from Irving Levin Associates.
Deal volume reached its highest level in over a decade, representing a 34 percent increase over the 71 deals posted in January 2011, and a 7 percent increase over the 89 deals posted in January 2006, when unsustainable amounts of capital were still inflating the housing bubble.
With 50 deals worth a combined $14.95 billion, the healthcare technology segment captured 53 percent of the total M&A deal volume and 87 percent of all dollars spent on healthcare. Among the individual sectors, medical devices led the pack with 21 deals (22 percent) worth $6.9 billion (40 percent). The services segment, by contrast had 45 deals (47 percent of the total) worth $2.2 billion (13 percent).
“M&A activity is currently brisk for a number of reasons,” said Sanford Steever, PhD, editor of Irving Levine’s The Health Care M&A Monthly and The Health Care M&A Report. “The healthcare delivery network remains fragmented; M&A can squeeze out excess costs. The Federal Reserve is keeping interest rates low for the next three years, implying low costs of borrowing. Some healthcare companies are buying other companies to take advantage of those low rates. This also implies a measure of stability in which M&A tends to thrive. Organizations are continuing to put together the components of ACOs, so that hospitals are buying physicians practices, while managed care organizations are buying e-Health and IT companies.”
Jon Krieger, managing director at New York City-based investment bank Berkery Noyes agrees that there are several influences driving the rapid-fire M&A movement.
“A few factors are in play,” said Krieger. “Private companies are taking advantage of the healthcare M&A markets to capitalize on attractive valuation levels, an increased breadth of buyers and the favorable tax treatment that will go away next year.”
“Private growth companies delivering technology enabled services to healthcare providers, payers and life sciences companies are in high demand by strategic and private equity acquirers,” added Krieger.
Robust M&A activity is expected to continue throughout 2012, said Steever.
“I expect to see good levels of M&A for the year,” he said. “The only things that could slow it down are election-year jitters over the continued future of healthcare reform (companies will still undertake deals, but will have a longer due diligence period). More peripherally, another economic downturn, which is increasingly remote, could also slow down, but not stop healthcare M&A.”
Follow HFN Editor Rene Letourneau on Twitter @ReneLetourneau.
