Health Care M&A Activity Spikes in Q3

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Health care mergers and acquisition activity spiked to $66.5 billion in the third quarter of 2010, up 44% from the $45.1 billion spent in the previous quarter, reveals a new report from research firm Irving Levin Associates, Norwalk, Ct. Third-quarter activity also rose 74% from the $38.2 billion spent during the same three months of last year, the report indicates, with a total of 230 mergers and acquisitions occurring between July and September, versus 233 deals announced in the prior quarter.

Hospitals led M &A activity on the services side, striking 24 deals worth $6.5 billion and accounting for a total of 10 percent of third-quarter deal volume. This represents a 26% increase over 19 deals written during the second-quarter of 2010 and a 20% increase over 20 deals written during third-quarter 2009. Physician groups announced 13 M &A agreements, up 44% from nine agreements set in the previous quarter as well as 44% from nine agreements announced in third-quarter 2009.

Sanford Steever, PhD, editor of The Healthcare M &A Report, could not quantify increases in M &A activity among and spending by radiology providers. However, he told imagingBiz in a telephone interview that recent developments, including Virtual Radiology’s agreement to acquire pioneer teleradiology provider NightHawk Radiology for $170 million, RadNet’s acquisition of eRAD parent Image Medical for $10.75 million, and the sale of Alabaster, Ala.-based Tower Imaging to Shelby Baptist Hospital by Birmingham Radiology Group, are just “a hint of things to come” as far as M &A and the industry are concerned.

“The insurance landscape now and going forward is very uncertain,” Steever stated. “In order to deal with insurers on such a plain, radiology service and technology providers, like health care providers in other specialties, will increasingly attempt to gain strength in numbers by engaging in mergers and acquisitions.”

Steever added that the uptick in M &A dollar volume over the previous quarter may also stem from a return of confidence to the market, as well as from a release of pent-up investment dollars that had been “sitting on the sidelines” during the economic downturn of the past two years.

According to the study, M &A activity has proliferated in the biotechnology sector as pharmaceutical companies look for the next blockbuster therapy to replace revenues being lost to generic competition.

Financial buyers, among them private equity groups and REITs, played a particularly strong role in health care M &A activity in third quarter 2010, inking 22 deals worth a combined $14.4 billion, according to the report.

“During the third quarter, financial buyers accounted for 22% of all dollars spent on health care M &A, up dramatically from the $3.8 billion, or 6% of all dollars, spent in the prior quarter,” said Stephen M. Monroe, managing editor at Irving Levin Associates, after the report was issued. “Private equity groups in particular have found many opportunities in the health care industry to deploy the capital that has been sitting on the sidelines.”

The first three quarters of 2010 saw 682 deals in the health care industry, with a combined value of $144.5 billion.

“Health care companies in general have already started to position their businesses for the future and are well into planning for 2011,” Steever told imagingBiz. “They will continue to attempt to foster growth, consolidate fragmented industries, achieve economies of scale, and keep insurance troubles at bay through M &A strategies.”