M&A activity up in first quarter
Merger and acquisition activity in the healthcare industry posted strong gains during the first quarter of 2012 over the prior and year-ago quarters, healthcare M&A data publisher Irving Levin Associates reported Wednesday.
“Quarter over quarter, the volume of healthcare M&A deals keeps increasing as both strategic and financial buyers invest more of their capital in the various sectors of healthcare,” said Sanford Steever, editor of The Health Care M&A Report, in a press release announcing the latest figures. “Despite rumors of its demise in the general media, the M&A market for healthcare is alive and thriving.”
[Also: 2012 kicks off with record healthcare M&A volume ]
According to the report, only six M&A deals were announced in the first quarter with a price tag of $1.0 billion or greater, accounting for just 36 percent of the quarter’s dollar volume.
“While in the past billion-dollar deals have captured as much as three-quarters of the dollars spent in a quarter, the first quarter’s results show that the M&A market is currently being driven by deals and dollars coming from the middle market,” said Stephen M. Monroe, managing editor at Irving Levin. “Deal making is not restricted to the 1 percent, but covers a broad range of participants seeking to grow their businesses and their offerings to patients and consumers through mergers, acquisitions and takeovers,”
The biotechnology and pharmaceutical sectors together captured 19 percent of the deal volume but 57 percent of the dollar volume in the Q1:12 healthcare M&A market.
“The distinction between the biotech and pharma sectors continues to blur as big pharma companies, faced with patent expirations on some of their best earners, scour promising biotechs to discover the next blockbuster drug. Some companies are in effect outsourcing their R&D through M&A and collaboration deals,” noted Steever.
In the same vein, generic pharmaceutical companies are making big acquisitions of their own to take advantage of their competitors’ products losing exclusivity and to grow their portfolios by selling cheaper generic versions of branded drugs.
“This gives them a natural competitive advantage that is attractive to providers and payers who are seeking to contain skyrocketing healthcare costs, as well as to investors looking for growth opportunities,” said Steever.
In an interview with Healthcare Finance News in March, Steever said of the uptick in M&A deal volume: “M&A activity is currently brisk for a number of reasons. 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.”
