Health information technology and related companies rebounded in late 2009 as the economy improved and details emerged on healthcare reform and federal health IT subsidies, said analysts in a newly released report.
Publicly traded IT companies in the healthcare sector largely outperformed the Standard & Poor's 500 for the year (which finished up 23.5%), according to analysts with Elmhurst, Ill.-based Healthcare Growth Partners, which tracks eight indexes in the sector.
Indexes tracking large health technology companies, pharmacy benefit managers, health plan and providers finished the year with near-record stock performance. Only one index fell short of the S&P growth: health IT services, which includes Affiliated Computer Services, Computer Sciences Corp., Huron Consulting Group, Dell, Navigant Consulting and Xerox.
Strong interest in the sectors from investors—as evidenced by rising share prices—suggests markets see continued growth in healthcare spending despite reform efforts to blunt costs, said Christopher McCord, a Healthcare Growth Partners principal.
Merger-and-acquisition activity also picked up pace in the final months of the year, a trend expected to continue as distressed companies enter the market looking for buyers, according to the report. Two major transactions in 2009 factored significantly into the increased activity:
Dell's deal to acquire Perot Systems Corp. and the
Xerox acquisition deal for Affiliated Computer Systems, McCord said.
Private equity and venture capital cooled in 2009 despite a modest increase in the number of transactions. Last year closed with 121 deals, as compared with 118 in 2008, but the overall value of private capital investments dropped by 45.3% to $647 million in 2009 from $1.18 billion the prior year. McCord noted funding for early-stage companies has contracted.
McCord said the health IT sector enters 2010 with a stronger outlook than 2009 thanks to improved hospital balances sheets, growing appetite for risk among investors amid signs of economic recovery and
more clarity on criteria for federal health technology subsidies. Uncertainty around the criteria delayed purchases and hospitals are now in a better position to make health IT investments, he said.
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