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.”