Thursday, September 17, 2015
Berkery Noyes: Healthcare/Pharma Information and Technology Industry M&A Report For Half Year 2015
Berkery Noyes, an independent mid-market investment bank, has released its half year 2015 mergers and acquisitions trend report for the Healthcare/Pharma Information and Technology Industry.
The report analyzes M&A activity during the first half of 2015 and compares it with the four previous six-month periods from 2013 to 2014. This market includes information, technology, and digital companies servicing the pharmaceutical, healthcare payer, and healthcare provider spaces.
Total deal volume increased 16 percent relative to second half 2014. Transactions completed by strategic acquirers rose from 138 to 163 deals, whereas those backed by financial sponsors improved from 52 to 57 deals. Aggregate value fell 43 percent, from $10.70 billion to $6.06 billion. However, value gained 24 percent on a year-over-year basis. Also of note, seven of the industry’s top ten largest deals last year occurred in second 2014.
The peak for volume throughout the previous two-and-a-half years occurred in first half 2015 while value reached its zenith in second half 2014. In terms of valuations, the median revenue multiple over the past six months decreased from 3.0x to 2.7x, which remained slightly above its median throughout the last 30 months.
The industry’s largest transaction year-to-date was MEDNAX’s acquisition of vRad, an outsourced radiology physician services and telemedicine company, for $500 million. This occurred in the Healthcare Business Services segment. Meanwhile, M&A activity in the segment increased 53 percent, from 34 to 52 deals.
Transaction volume in the Healthcare IT segment remained about constant, with a total of 101 deals. This represented a 29 percent increase compared to first half 2014 and was the segment’s highest point throughout the past two-and-a-half years. Moreover, there was a 16 percent rise in the number of strategic acquisitions in the Healthcare IT segment, from 69 in second half 2014 to 80 deals in first half 2015. Strategic acquirers accounted for 79 percent of Healthcare IT volume year-to-date.
The Consumer Health segment saw a slight uptick, from 14 to 16 deals. Clothing manufacturer Under Armour was a notable Consumer Health acquirer with two mobile-based acquisitions in first half 2015 relating to digital health data, nutrition information, and fitness tracking. Along these lines, Under Armour acquired MyFitnessPal for $475 million and Endomondo for $85 million. These two transactions will build upon Under Armour’s previous acquisition of MapMyFitness for $150 million in 2013.
As for other markets covered in the report, volume in the Medical Education segment more than doubled, from 9 to 20 deals. Transaction volume in the combined Pharma IT, Pharma Business Services, and Pharma Information stayed nearly the same, from 23 to 25 deals. One of the largest related transactions in first half 2015 was ICON’s acquisition of MediMedia Pharma Solutions, a provider of scientific analysis, assessment, research and insights for the biopharmaceutical and medical device industries, for $120 million.
“In the rapidly changing healthcare information/technology marketplace, both strategic and financial buyers are on the hunt for attractive acquisitions of scale,” said Tom O’Connor, Managing Director at Berkery Noyes. “Companies with good scale, recurring revenue, and high growth rates with a large addressable market opportunity, whether they are healthcare information/education/technology providers, revenue cycle management, point-of-care information solutions, or one of many other attractive niches, are in high demand from both private equity and strategic buyers.”
O’Connor continued, “Interestingly, strategic buyers are dominating the deal flow and high multiples. However, financial buyers remain on the hunt, are focused on high growth assets, and have over $500 billion of dry powder which they can leverage 4x-8x. We haven’t seen such a seller’s market since the 2004-2007 timeframe. With all the attractive dynamics noted above there remains a lack of quality assets of scale available, so any attractive assets are commanding high valuations and multiple buyers.”
“The industry is undergoing a rapid transformation and structural shifts due to reform, cost pressures, shifting responsibilities between payors and providers, and in increased regulatory environment,” stated Jonathan Krieger, Managing Director at Berkery Noyes. “Private, best-of-breed technology-enable healthcare IT companies that effectively address market niches and have some level of scale are in high demand by both financial and strategic buyers.”