During the first quarter of 2011, $54.4 billion was spent to finance mergers and acquisitions in the healthcare industry, up 65 percent from the $32.9 billion spent in the first quarter of 2010, according to a new report from Irving Levin Associates.
However, deal volume slipped somewhat during the same period, with a 16 percent decrease in transactions from the fourth quarter of 2010 and an 8 percent dip from the same quarter last year. By annualizing the first quarter 2011 dollar figure, Levin projected that nearly $220 billion will be spent in 2011 for M&A activity in the healthcare industry.
According to Levin, M&A activity was driven primarily by the search for new drugs to treat the elderly and housing facilities to take care of them – the two busiest sectors during the quarter.
“As patent cliffs loom, pharmaceutical companies are paying up to acquire promising drug candidates in clinical trials that have been developed by biotech companies. Buyers are banking on the novelty of these drugs and their difficulty of replication to restore revenues that are being lost to generic copy-cat drugs,” said Sanford Steever, editor of Irving Levin’s Health Care M&A Report.
“With renewed sources of capital and novel ways to structure their investments at their disposal, buyers of seniors housing facilities have increased their portfolios so they can accommodate the influx of residents and their healthcare needs as the population continues to age and retire. The real estate investment trusts have been particularly active in long-term care M&A,” added Stephen M. Monroe, managing editor at Irving Levin Associates.
[See related story: Healthcare M&A rebounded in 2010]
Recent healthcare reform has had an impact on M&A activity in other individual sectors of the healthcare industry. The acquisition of physician medical groups by hospitals has increased as providers attempt to build the accountable care organizations proposed in the legislation while acquisition activity in the managed care sector continues to lag due to remaining uncertainties over reimbursement issues and the durability of reform.
“While government reform has shown its ability to influence mergers and acquisitions in the healthcare industry,” Steever said, “the market continues to respond to fundamental forces such as the consolidation of fragmented providers, the containment of exploding healthcare costs and the need to better integrate different facets of the healthcare delivery system. Policy makers may debate, but the M&A market continues to reshape the healthcare landscape.”