Norwalk Firm: Health Care Mergers, Acquisitions Show Strength

(Source: Connecticut Post) By Richard Lee, Connecticut Post, Bridgeport
Apr. 24,2009 --While the recession and credit crunch seem to have put the clamps on most mergers and acquisitions, an area firm said the picture is brighter in the health care industry.

According to a new report from Norwalk-based Irving Levin Associates, 199 mergers and acquisitions were announced in the health care industry during the first quarter.

Although the figure represents a 13 percent decrease from the nearly 230 deals announced in the prior and year-ago quarters, it is solid for the economy, said Dr. Sanford Steever, editor of The Health Care M&A Report.

Based on preliminary figures, $127.4 billion was committed to fund the first quarter's M&A activity, the most ever spent in a single quarter. It breaks the previous record of $118.4 billion set in the fourth quarter of 1999.

Two multibillion-dollar deals were announced in the first quarter this year in the pharmaceutical sector -- Pfizer's $68 billion purchase of Wyeth and Merck's $41.1 billion acquisition of Schering-Plough.

"Despite exaggerated reports of its weakness, the current market has demonstrated the capacity to put together and finance two mega-deals," Steever said in a statement. "Buoyed by strong cash flow, big pharma companies still have the resources, the strategic vision and the will to continue making transformative deals."

While the level of mergers and acquisitions has been relatively strong in the first quarter of 2009, they have resulted in job losses.

Pharmaceutical companies announced more than 48,000 job cuts in the first quarter, compared with 10,905 during the same period last year, according to outplacement consultancy Challenger, Gray & Christmas Inc. Not all of those layoffs can be attributed to mergers and acquisitions.

The health care technology segment attracted the largest amount of capital, capturing nearly 99 cents out of every dollar invested in health care mergers and acquisitions. The pharmaceutical sector accounted for 89 percent of the dollar volume.

"Pharma, biotech and medical device companies have relied on their own cash flow and their ability to go to the credit markets to access the capital required for large deals," Stephen Monroe, managing editor at Irving Levin Associates, said in a statement.

"The demand for health care products and services remains strong and can only rise as demographics shift towards an older population," Steever said in a statement.

"Health care is somewhat exceptional compared to other areas," he said. "It has been a bright spot in mergers and acquisitions. We track deals by the time they are announced. We're seeing them now because the valuations are a little lower than they would have had to pay a year ago."

"The big surprise was that they were able to finance those deals," Steever said.

The level of health care-related deals in the first quarter came as no surprise to Roger Aguinaldo, chief executive officer and publisher of Mergers & Acquisitions Advisor.

"A lot of these transactions are middle market. When they see value, they are going to buy. They're less reliant on financing," he said.

As the Obama administration considers changes to the health care system and regulations, companies are weighing their options.

"Companies are seeing the writing on the wall," Aguinaldo said. "They're more apt to survive if they are bigger."

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