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Healthcare – Expecting increases in deal activity

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Healthcare services M&A is expected to accelerate in the coming months, according to a recent GE Capital survey of healthcare services executive. Increased optimism about business performance is a key driver. In that survey, 88% of executives indicated that M&A is in their near-term future. The survey examined the expectations of more than 200 senior executives within the healthcare services industry in advance of its 2013 Healthcare Services Conference held last week in Washington, D.C.

We see private equity-backed healthcare companies as active acquirers in the coming months, along with publicly traded strategics looking to make inroads into new areas of healthcare. Healthcare IT continues to attract strong attention from within and without the industry – see the acquisition of healthcare IT businesses by defense companies and others. Provider group consolidation, hospital mergers, technology and product acquisitions, headline-grabbing pharmaceutical deals in oncology and generics, and the increased interest from the IPO market are adding up to more healthcare deal activity and higher valuations.

According to Morrison & Foerster’s BioMeter, upfront payments for pre-clinical deals have averaged around $10 million, with Phase II deals coming in at nearly $40 million on average in recent months. In addition, venture-backed healthcare companies have continued to experience “big exit” opportunities according to a recent SVB survey. Private venture-backed M&A with at least $75 million upfront in biotech and $50 million upfront for device and services — reached an eight-year high in 2012.

With so many positive factors aligning, expect a continuing increase in deal activity and interest in the sector.