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Spending on healthcare M&A rises 44 percent

The third quarter of 2010 saw $66.5 billion in healthcare mergers and acquisitions activity, up 47 percent from the $45.1 billion spent in the previous quarter, according to a new report from Irving Levin Associates.

Third quarter activity jumped 74 percent from the $38.2 billion spent during the same three months of last year, said the Norwalk, Conn.-based analyst.

A total of 230 mergers and acquisitions were announced in the healthcare industry between July and September, almost level with the 233 deals announced in the prior quarter.

Officials say the increase in dollar volume over the previous quarter may be contributed in part to a return of confidence to the market and in part to a release of pent-up investment dollars that had been sitting on the sidelines during the economic downturn of the past two years.

According to the study, M&A activity has prospered in the biotechnology sector as pharmaceutical companies look for the next blockbuster therapy to replace revenues being lost to generic competition.

“With looming patent cliffs, many of the big pharma companies are seeking to cushion the blow by acquiring promising late-stage drug candidates,” said Sanford Steever, PhD, editor of The Healthcare M&A Report. “At the same time, those pharma companies that remain in the pharmaceutical M&A market are buying copycat drug companies so they can compete with pure-play generic drug companies.”

The biotechnology and pharmaceutical sectors account for 23 percent of recent deal volume, but 54 percent of dollar volume in the healthcare M&A market.

Financial buyers such as private equity groups and REITs made a very strong showing in the third quarter, announcing 22 deals worth a combined $14.4 billion, according to the report.

“During the third quarter, financial buyers accounted for 22 percent of all dollars spent on healthcare M&A, up dramatically from the $3.8 billion, or 6 percent of all dollars, spent in the prior quarter,” said Stephen M. Monroe, managing editor at Irving Levin Associates. “Private equity groups in particular have found many opportunities in the healthcare industry to deploy the capital that has been sitting on the sidelines.”

The first three quarters of 2010 saw 682 deals in the healthcare industry, with a combined value of $144.5 billion.

“Building on a strong year, healthcare companies have already begun to position their business for 2011 and beyond,” said Steever. “They will continue to pursue M&A to grow their businesses, achieve economies of scale and consolidate fragmented industries.”

 

THE HEALTH CARE M&A MARKET THIRD QUARTER 2010

DOLLAR AMOUNTS BY SECTOR*

Sector   Dollar Amount   Percent of
    Third Quarter 2010   Quarter
Biotechnology   $ 28,598,250,000   43%
Pharmaceuticals   7,158,530,000   11%
Medical Devices   5,105,119,000   8%
e-Health   2,999,950,000   5%
Technology subtotal   $ 43,861,849,000   67%
         
Hospitals   $ 6,559,400,000   10%
Managed Care   3,661,600,000   6%
Labs, MRI, Dialysis   1,118,200,000   2%
Behavioral Health Care   390,000,000   >1%
Long-Term Care   355,383,000   >1%
Home Health Care   56,250,000   >1%
Physician Medical Groups    
Rehabilitation    
Other Services   10,530,868,000   16%
Services subtotal   $ 22,671,701,000   33%
         
Total health care   $ 66,533,550,000   100%

*Preliminary figures

 

THE HEALTH CARE M&A MARKET Q3:10 – DEAL VOLUME BY SECTOR

                     
    Q3:10   Q2:10   %   Q3:09   %

Sector

  Deals*   Deals   Change   Deals   Change
Services Segment:                    
Hospitals   24   19   26%   20   20%
Long-Term Care   25   27   -7%   21   19%
Physician Groups   13   9   44%   9   44%
Labs, MRI, Dialysis   9   15   -40%   8   13%
Home Health Care   8   11   -27%   8   0%
Managed Care   7   3   133%   7   0%
Behavioral Health Care   2   4   -50%   5   -60%
Rehabilitation   1   4   -75%   0   N/A
Other   23   18   28%   17   35%
Services Subtotal   112   110   2%   95   18%
                     
Technology Segment:                    
Medical Devices   44   44   0%   43   2%
Biotechnology   34   25   36%   42   -19%
e-Health   22   11   100%   21   5%
Pharmaceuticals   18   43   -58%   38   -53%
Technology Subtotal   118   123   -4%   144   -18%
                     
Grand Total   230   233   -1%   239   -4%
*Preliminary figures

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