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May 16, 2016

Healthcare starting to shake off M&A hangover

Healthcare starting to shake off M&A hangover
Healthcare merger and acquisition activity is behind the record pace of a year ago.

But the second half of 2016 is expected to be busier, led by companies looking to buy rivals to grow and gain complementary products rather than by equity investors, a panel of investment executives told a luncheon audience Thursday at the Nashville Health Care Council.

Last year was the busiest year ever for M&A, with $4.8 trillion worth of deals done, including $500 billion in the healthcare sector, said Toby King, managing director of the global healthcare group at Citigroup.

Merger volumes in healthcare were down about 17% in the first quarter of this year compared with the prior year, King said.

But a handful of big deals at the end of April were illustrative of the kind that were popular this year, King said. That is, strategic buyers wanting to combine with rivals to acquire new technologies and products, he said.

On April 28, Abbott Laboratories announced it was buying St. Jude Medical for $19.3 billion; France’s Sanofi said it was buying Medivation for $9.3 billion; and AbbVie announced it was buying StemCentrx for $5.8 billion.

King said recent volatility in the equity markets and debt financiers wanting to see more investor equity go into deals had given prospective buyers the jitters.

Mohamad Makhzoumi, partner and head of healthcare services at New Enterprise Associates, characterized 2015 as “a party” and 2016 as “a hangover.”

He said the dynamic that is causing some financial buyers to stay on the sidelines is good for the long-term buyers who want to build strong, integrated companies.

King and Makhzoumi were joined on the panel by Anna Haghgooie, managing director of healthcare at Sandbox Industries, and Stephen Eaton, managing director of EDG Partners. The panel was moderated by Tom Wylly, senior partner for Brentwood Capital Advisors.

Haghgooie said investors also are on the prowl for information technology companies that can help providers and payers manage care for populations and absorb the financial risks of doing so

Eaton, who is on the board of directors at Emory Healthcare in Atlanta, said it is through partnerships with insurers and providers that Emory is looking to manage populations and build its delivery network.

In fact, the newly named CEO of Emory Healthcare is Dr. Jonathan Lewin, who helped to build an integrated delivery network at Johns Hopkins Medicine in Baltimore.

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