Healthcare M&A Get Strong Prognosis

Healthcare has seen a spate of PE-backed deals this week, and sector deal volume is expected to keep rising.

On Friday, THL Partners said it was buying Intermedix, a provider of emergency billing services, from Parthenon Capital Partners. Water Street Healthcare Partners also announced its purchase of Medical Specialties Distributors. Other recent examples:

  • Vestar Capital, earlier this week, agreed to acquire Health Grades Inc., which provides reports and ratings on doctors and hospitals, for roughly $294 million.
  • The Jordan Co. inked a deal to sell Harrington Holdings, operator of Edgepark Medical Supplies, to Clayton, Dublier & Rice and GS Capital Partners for $850 million.
  • Executive Health Resources, which is owned by ABRY Partners, is in talks to sell itself to UnitedHealth Group for $1.5 billion.

So far this year, there have been 372 U.S. announced mergers in the healthcare sector, raising $46.5 billion as of July 30. The valuations are down significantly from last year when 424 transactions raised about $148.5 billion, according to data from Thomson Reuters.

However PE -backed deals appear to be flourishing. There were 50 healthcare mergers involving buyout shops, raising about $7.8 billion as of July 30. This compares to 2009 when 45 PE-backed deals raised a mere $428.6 million, Thomson Reuters said.

Two of the top 10 healthcare mergers involved buyout shops. BC Partners and Silver Lake are buying Multiplan for about $3.1 billion while The Carlyle Group is acquiring NBTY for about $3.8 billion.

Healthcare deals are rising because the industry is highly fragmented, both on the devices and the services side, says Stewart Kohl, Co-CEO of the Riverside Co. The sector also went on hiatus as companies waited to see if healthcare reform would become a reality. “Now, there is more certainty and the pent up demand among buyers and sellers is playing out,” he says.

With the reform, more than 30 million more Americans will be covered which will increase the demand for products and services, Kohl says.

PE firms like healthcare companies because they are typically a defensive play. “You can typically load a decent amount of debt on them,” says a second buyout executive.