More on Capital Finance

Healthcare pharma, IT M&A volume up, values down in 2012

Healthcare and pharma IT mergers and acquisitions transaction volume increased 28 percent while transaction value decreased 14 percent during the first half of 2012, according to a new report from mid-market investment banking firm Berkery Noyes.

[Also: Some healthcare execs look for increased M&A activity after SCOTUS ruling]

For the report, “Healthcare/Pharma Information and Technology,” Berkery Noyes analyzed merger and acquisition activity for the sector over the first half of 2012 and compared it with activity in the four previous six-month periods. This market includes information and technology companies servicing pharmaceutical, healthcare payer and healthcare provider companies.

Tom O’Connor, managing director at Berkery Noyes, said there are several factors driving M&A in the active HIT market right now.

“(The) healthcare industry is 15 years behind in adoption of technology versus the legal and financial markets (therefore) large catch up is under way,” he said, adding, “the declining reimbursements rate and cost of healthcare, which is currently 18 percent of GDP and increasing, is spurring innovation via software solution to lower cost, improve care and make healthcare more accountable.”

[Also: M&A activity up in first quarter]

O’Connor said Americans’ demand for high quality care and a reduction in medical errors is also fueling the M&A fire.

“The complexity of healthcare and the explosion of information and new treatments makes it impossible to do medicine the old way via human memory so software and solutions step in to assist healthcare professionals in the practice of medicine,” he said.

According to the report, the largest overall industry transaction in the first half of 2012 was Veritas Capital Partners' acquisition of Thomson Reuters' Healthcare Business, a subsidiary of Thomson Reuters, for $1.25 billion.

Verisk Analytics' announced acquisition of MediConnect Global for $324 million was one of the largest transactions in the Healthcare IT segment, which underwent a 23 percent increase in volume compared to second half 2011.

The majority of deals, however, involve smaller companies and represent less significant values, said O’Connor.

“Most of the innovation is happening at smaller, privately held entrepreneur-owned companies that have a unique software solution or workflow tools,” he said. “When they reach a certain size or get traction (they) are either snapped up by a cash rich but slower moving strategic or get an investment from technology focused private equity groups at three to five times revenue.”

“The robust level of M&A activity shows that there are plenty of desirable, fast growing companies - many privately owned - that are attracting very high multiples and appealing to both strategic and financial acquirers,” added O’Connor. “We expect robust activity in healthcare information and technology markets of the next 24 months, continuing for the next five years.”