2012 Health Care Merger and Acquisition Spending Down, Number of Deals Up

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Spending for health care mergers and acquisitions fell by 38% in 2012, according to a new report by Irving Levin Associates. When all health care sectors tracked in the report are combined, $143.3 billion was committed to deals in 2012, significantly less than in 2011, which saw expenditures of $231 billion. Overall spending in 2012 was the lowest since 2003, when $94.2 billion was spent on mergers and acquisitions.

However, the picture changes slightly when one looks at individual sectors and the number of deals. Despite declining expenditures, the number of deals announced remained high, with 1,063 announced deals in 2012, up 5.9% from 2011. Deal volume for technology and service increased by 2% and 8.9%, respectively.

In addition, as dollar volumes in big money sectors like technology fell significantly, it rose for the physician medical group and home health care and hospice sectors. The amount of money spent on mergers and acquisitions for physician medical groups jumped 845.6% to $4.4 billion in 2012, largely due to the $4.2 billion acquisition of HealthCare Partners, Inc. by DaVita Inc. last year.

The report authors also cited the trend of physicians getting out of private practice as practice administration gets increasingly complex at the same time as hospital and medical systems are on a physician group buying spree in order to better control costs in newly formed Accountable Care Organizations and "lock in" physician referrals to their own facilities.

Other high growth sectors included home health and hospice, which recorded substantial growth with increases in both deal and dollar volume, at 20.7% and 1872.1% ($5.7 billion in 2012 vs. $289 million in 2011). Behavioral health care dollar volume also rose 230.6%.

Sectors that declined included the technology and services sector. They dropped by 41.6% and 38%, respectively. In particular, hospitals and medical devices saw drastic declines, dropping by 77.72% and 62%.

“The fact that the number of M &A transactions was so high, despite the drop in dollar volume, indicates a strong case of market breadth with buyers going after more strategic deals and not the blockbusters,” said Stephen M. Monroe, partner at Levin Associates, in the press release.

For a more detailed look at 2012 health care merger and acquisition activity, click here to view the report.