Health-Overhaul Resolution Could Release Pent-Up Deal Demand
Uncertainty over the outcome of U.S. health-overhaul efforts,
along with the recession and tight credit markets, has caused
delays in deal-making among health-care companies.
"There's certainly a pent-up demand," said Steven Elek III,
PricewaterhouseCoopers' partner in charge of health-care
Companies that provide managed care or other health services
could see their business models and margins affected by changes
resulting from the health-overhaul discussion. Small nonprofit
hospitals, home-nursing companies and insurers that provide
Medicare Advantage plans are among the areas primed for merger
"There's been a clear hesitation by some of the larger
strategic, typical buyers to do things right now until some of the
Washington political dialogue has been resolved," said Marc
Cabrera, managing director and head of health-care investment
banking at Morgan Joseph & Co.
The deal flow hasn't entirely stopped, as the pharmaceutical
industry has maintained a fairly brisk pace of large mergers and
acquisitions, and some health-insurance and pharmacy-benefits
management players have been planning or weighing deals.
Nonetheless, those who advise health-care companies on
transactions such as mergers and acquisitions, private-equity
investments and initial stock offerings say health-sector deal flow
stumbled significantly last fall as the economy and credit markets
Mergers and acquisitions of U.S. health-care companies came to
nearly $160 billion last year, with 45% of the deals involving
pharmaceutical companies, 36% biotechnology companies and 12%
health-equipment and supply companies, according to Thomson
In 2009 through late July, acquisitions of drug companies
account for 89% of the more than $138 billion in health sector
M&A deals, with fewer than $16 billion in total deals for
medical-equipment suppliers, insurers, biotech businesses,
hospitals and other concerns, Thomson Reuters reported.
With the slight loosening in capital markets, Elek said, there
has been increased activity, though "there's still a significant
amount of pent-up demand," from the middle market to
multibillion-dollar potential transactions.
"We see a lot of our health-care, particularly hospital, clients
taking a wait-and-see attitude," Elek said. "To the extent health
reform ultimately passes and we know what shape it's going to take,
it'll bring certainty to the market, and with that certainty, it'll
lead to opportunities."
Some hospitals, particularly small nonprofits hurt by the credit
crisis, are looking to be acquired or enter into ventures with
stronger health systems in their areas, Elek said.
"Well-financed for-profit systems will have opportunities in the
market," he added.
Once health-overhaul and related reimbursement questions are
settled, Cabrera said he expects to see increased M&A activity
among managed-care companies selling Medicare Advantage plans.
"That's been a very hot sector because it's been very
profitable," Cabrera said. "I think there will be acquisition
interest" and smaller companies looking to be sold.
Bigger players like UnitedHealth Group Inc. (UNH), Humana Inc.
(HUM) and WellPoint Inc. (WLP) could be buyers, he said, adding
that he was encouraged by UnitedHealth's plan to buy the
northeastern U.S. subsidiaries for Health Net Inc. (HNT), which
includes a Medicare component.
Cabrera, whose company provides corporate-financing services to
mid-market companies, also said he expects increased M&A
activity among home-nursing companies. He noted "a tremendous
amount of activity" in the home-health business until last
Once the protocols governing the health-care
information-technology infrastructure are further clarified, there
could be deal activity in that industry as well, Cabrera said.
Venture and private-equity investors are interested in the
sector, he said, and companies such as Allscripts-Misys Healthcare
Solutions Inc. (MDRX) and Cerner Corp. (CERN) could emerge as
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285;