Health Care

Health Care M&A Outlook 2010

The health care (HC) industry was the only industry to outperform the previous year in 2009, and it did so by more than 60 percent. It reached its second-highest level in 10 years, second only to the record-breaking volume of health care transactions seen in 2006. Mergers & acquisitions (M&A) declined slightly in the number of transactions from 2008 to 2009 (1001 vs. 932, or 7 percent). But the value of those transactions in 2009 was a slight improvement from 2008 ($233 billion compared to $227 billion).

With health care at the top of the federal agenda, expect many changes within the HC industry, particularly in M&A. Aside from the obvious possible “acquisition” of public health care, in general, there will be a number of M&A opportunities, both for companies to “trim the fat” and for others to expand.

Look for consolidations and mergers to increase dramatically in the services, managed care and pharmaceutical sectors. The changes will be double-edged, focusing on reducing costs while boosting productivity. Smaller acquisition targets will be the order of the day, particularly in the pharmaceutical sector. Expect the same sector to apply more focus, and thus look for more acquisitions, in areas that are less involved with the federal government, such as over-the-counter products, animal health, vaccines and biologics.

In a similar vein, look for a subsector of the HC industry to emerge unhindered by the high degree of regulation imposed on the traditional HC industry. This subsector will comprise various nutrition, homeopathic, and fitness health professionals, as well as integrative-health providers, particularly as the aging U.S. population maintains greater health and mobility throughout the life span. Due to nontraditional knowledge required to manage these ventures, M&A activity is the most likely way that traditional health care providers will join the trend. Also, expect established nontraditional health care providers to merge to withstand competition from traditional health care providers and retail facilities (e.g., herb shops, fitness centers) providing the same or similar services.

SOURCES: KPMG, PriceWaterhouseCoopers, Deloitte, Private Equity Professional Digest, Reuters