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Healthcare M&A spending down 38 percent in 2012

Overall spending on healthcare mergers, acquisitions and takeovers dropped 38 percent in 2012 compared to 2011, down from $231 billion to $143.3 billion, according to a recent report from research and publishing firm Irving Levin Associates.

[Also: Healthcare M&A dips in Q3 2012 but is not cause for panic]

Last year ranks ninth out of the last 10 years in dollar volume, with only 2003’s $94.2 billion coming in lower, said the report.

The drop in dollar volume was “mostly a result of fewer multi-billion dollar transactions, mostly in the medical device and pharma/biotech areas,” said Steven M. Monroe, partner and managing editor at Irving Levin.

“And those large deals themselves were actually smaller than the large deals of the previous few years. In other words, we haven't seen too many of those $10 to $30 billion deals,” he added.

[Also: Healthcare M&A predicted to be robust in 2013 as ACA uncertainty lifts]

Although the total dollar volume was sluggish compared to other years, the number of deals in 2012 increased by 5.9 percent over 2011, with 1,063 deals being transacted, compared to 1,079 deals the year before.

“The fact that the number of M&A transactions was so high, despite the drop in dollar volume, indicates a strong case of market breadth with buyers going after more strategic deals and not the blockbusters,” said Monroe.

Monroe expects deal volume to be up through 2013.

“I do expect the number of transactions to remain high, because there seem to be more strategic acquisitions ... as opposed to the riskier mega-deals where the economics often rely on synergies and cost cutting,” he said.

Monroe also believes the uncertainty surrounding healthcare reform will continue to affect M&A this year.

“I don't see a return to the mega-deals of the past until there is more certainty,” he said.

Some healthcare sectors did well in both deal volume and dollar volume due, in part, to changes in reimbursement models and to the aging of the baby boomer population, said the report.

Home health and hospice recorded a 20.7 percent gain in deal volume and a 1872.1 percent gain in dollar volume over 2011.

The physician medical groups sector experienced an 845.6 percent increase in the dollar value of its M&A transactions compared to 2011, thanks to the $4.2 billion acquisition of HealthCare Partners, Inc. by DaVita Inc.

By contrast, the technology sector – including biotechnology, eHealth, medical devices and pharmaceuticals – saw a substantial slide in announced deal value, down 41.6 percent for the sector overall compared with 2011. Medical devices were hardest hit, declining 62 percent to $25 billion from $65.7 billion the year before.
 

[Also: M&A: What is driving the market?]