The Business of Health Care

Healthcare M&A: Keep Calm and Carry On

With just a couple of weeks to go until we hear from the Supreme Court on the fate of Health Reform, bankers and the investment community are making grand pronouncements that M&A activity is “on hold” until the Court opines.

This is just not true as you will see below.

Here’s an excerpt with an evocative title from PEHub’s coverage of the annual Jeffries Healthcare Conference just this week (emphasis added):

PE-Backed Healthcare M&A on Hold for Election, Supreme Court Decision on Obamacare

Private equity investing in healthcare is on pause this year, according to executives speaking Wednesday on the panel “Financial Sponsors Perspectives on Healthcare Investing.” The industry is waiting to see whether Mitt Romney succeeds in overtaking President Obama. Also, dealmakers wants some clarity on President Obama’s healthcare reform bill….

Healthcare M&A has slowed this year. So far there have been 1,073 global announced M&A deals, valued at $75.3 billion. This compares to 2,729 deals in all of 2011 which totaled roughly $229.6 billion….

“Once we get clarity, and past Obamacare and the presidential election, we will see more deals,” the exec said.

The problem with this is that it might make for good reading or for an “entertaining” panel discussion at an investment banking conference, but it doesn’t reflect reality.

For starters, M&A activity in healthcare is occurring at breakneck speed from my perch.  To be anecdotal about it, in the past 2 weeks alone, we have seen huge healthcare acquisitions both VC/PE backed and otherwise:

-Ascend Health ($517M)
-Healthcare Partners ($4.7B)
-Extend Health ($435M)
-Catalyst Health Solutions ($4.4B)

To look at it numerically, I made a quick spreadsheet using Capital IQ data of YTD 2012 vs. YTD same period 2011 for healthcare M&A announced value >$150M for US companies.

2011 Jan 1 to Jun 7: 55 announced acquisitions


2012 YTD: 49 announced acquisitions

That’s 6 fewer deals this year than last year – hardly an industry “on hold” waiting for the high court.

Prior to Supreme Court oral arguments (started March 26, 2012), the conventional wisdom was that the law had a very good chance of being upheld. So I looked at the post-oral argument “fear period” deal count in 2012 vs. the post-March 26th activity in 2011.

2011 March 26 to Jun 7: 21 announced acquisitions


2012 March 26 to Jun 7: 26 announced acquisitions

Deal activity is actually up in a very relevant time period for 2012 vs. 2011 – at a time when fear in the current year is supposedly so high. So much for the “healthcare reform bogeyman.”

Finally, the analysis mentioned in the article and at the Jeffries conference looked at global deal activity.  Are Brazilian companies really scared of US healthcare reform when looking to buy other Brazilian companies? No – highly unlikely given how domestic a business healthcare tends to be outside of large pharma.

The explanation could just be that global economic activity has slowed since last year and that EU uncertainty coupled with a possible Chinese growth slowdown has depressed the global numbers quoted at Jeffries.

As with all things healthcare, there’s always a bogeyman that scares the casual observer.  In fact, the nuance and detail matter a lot – especially in healthcare. And nuance and detail is very hard to convey to casual observers.

So for now, my advice is to do as the Brits do: Keep Calm and Carry On.

Bijan Salehizadeh is a managing director at NaviMed Capital.  He invests in growth stage companies in medical device, healthcare services and healthcare information technology. Follow him at his personal blog where this post was first published.

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