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More deals, smaller value
M&A Watch: Firms are thinking strategically

By Ashok Selvam
Posted: March 1, 2013 - 12:01 am ET

The pace of healthcare deals held strong through the end of 2012, but fewer companies entered big-dollar megadeals.

The last three months of the year saw 358 deals compared with 350 in the previous three months, according to Healthcare M&A Watch, which is produced by Modern Healthcare. The disclosed value of $22 billion, however, represented a 40% drop from the $36.9 billion worth of third-quarter deals. And that followed a 27% drop from the value of deals in the second quarter. The dynamic signals that buyers and investors are focusing on transactions that fit into their strategic plans rather than making ambitious plays with multibillion deals, according to the report.

The figures show a similar pattern for the full year. Overall, 2012 saw 1,430 deals—a 22% increase—compared with 2011's 1,170 deals. The disclosed value of those deals, however, was 12% less than in 2011, falling to $126 billion from $157 billion. Vendors contributed the most activity in 2012, accounting for 53.6% of the deal volume. Pharmaceuticals, life sciences and biotechnology were a distant second at 23.6% of the 2012 deals. Providers accounted for 19.4% and payers for 3.4%. Pharmaceutical, life science and biotechnology companies saw the most growth in the number of deals at the end of the year, increasing to 97 in the fourth quarter from 78 in the third.

Megadeals, though, were a rarity at the end of the year, with only four deals valued at more than $1 billion. The biggest was UnitedHealth Group's transaction with Brazilian insurer and provider Amil Participacoes. UnitedHealth agreed to pay $4.9 billion for a majority stake in the company, which provides health and dental benefits and runs a care delivery network that includes 22 hospitals and about 50 clinics. The three next largest deals were in the vendor segment. Baxter International bid $4 billion on Gambro, the Swedish dialysis equipment manufacturer. McKesson Corp. acquired PSS World Medical for $1.8 billion. HCP also announced its deal to buy 133 Senior Housing Communities for $1.7 billion.

Providers, meanwhile, recorded 72 deals worth about $1.2 billion in the fourth quarter. The number represents a small increase from the 69 deals in the third quarter but a 44% surge from the 50 deals in the same quarter in 2011.

M&A Watch notes that the fourth-quarter activity continued to reflect a trend toward vertical integration, with insurance companies acquiring hospitals and provider networks.

In addition to UnitedHealth's foray into Brazil, Humana acquired Metropolitan Health Networks in a deal worth $850 million. Highmark, a Pittsburgh-based Blue Cross and Blue Shield licensee, announced a preliminary agreement to add St. Vincent Health System, Erie, Pa., to a provider network the insurer is attempting to build around its long-pending bid for West Penn Allegheny Health System, Pittsburgh.

In spite of Baxter's big Gambro play, the total value of fourth-quarter deals in the pharmaceutical, life sciences and biotechnology segment represented the lowest of the year. The segment's deals tallied to $4.3 billion compared with $9.6 billion in the third quarter of 2012.

The number of deals among vendors fell to 174 in the fourth quarter from 188 in the previous quarter. Healthcare equipment accounted for 54.6% of those deals, with medical services responsible for 25.3% and healthcare information systems for 20.1%.

Modern Healthcare Insights, the publication's research arm, produced the report. Waller, a healthcare law firm headquartered in Nashville, once again sponsored the report. The sponsor wasn't involved in the gathering or publication of the independently researched data. Visit for more information on the report.

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