NEW YORK — January 10, 2013 — Berkery Noyes, an independent mid-market investment bank, today released its full year 2012 mergers and acquisitions trend report for the Healthcare/Pharma Information and Technology Industry.
The report analyzes merger and acquisition activity for the industry during 2012 and compares it with data covering 2010 and 2011. This market includes information and technology companies servicing the pharmaceutical, healthcare payer, and healthcare provider spaces.
Total transaction volume increased 21 percent on a yearly basis. At the same time, aggregate transaction value rose five percent, from $11.36 billion in 2011 to $11.96 billion in 2012. The median revenue multiple improved from 1.5x to 2.3x, while the median EBITDA multiple increased from 9.0x to 9.8x. Private equity firms were responsible for four of the industry’s top ten highest value deals during 2012. The most active financial sponsor in the report over the past year was TPG Capital with five transactions.
The Healthcare IT segment, which saw an 11 percent increase in deal flow in 2012, accounted for 41 percent of the industry’s aggregate transaction volume. The segment had a median revenue multiple of 1.8x and a median EBITDA multiple of 9.6x.
According to Tom O’Connor, Managing Director at Berkery Noyes, “The overall deal flow showed in general more transactions but smaller enterprise value deals getting done. The current market, due to large macro/regulatory changes in healthcare and a massive shift to electronic solutions, presents a very favorable climate for sellers with unique offerings, scale, recurring revenue models (SaaS) and rapid growth in attractive niches that are looking to capitalize on the high level of interest in healthcare information and technology solutions.”
O’Connor continued, “The robust level of M&A activity shows that there are plenty of desirable, fast growing companies – many privately owned and SaaS enabled solutions – that are attracting very high multiples and appealing to both strategic and financial acquirers. In addition, the expiring favorable tax treatment on capital gains helped push some sellers to complete transactions this year. We expect to see a lot of smaller, SaaS enabled solutions in attractive niches and rapidly growing companies come to market in 2013 and attract robust prices.”
Meanwhile, transaction volume in the industry’s revenue cycle management subsector increased 37 percent from 2011 to 2012. One of the largest related transactions in 2012 was Sutherland Global Services’ announced acquisition of Apollo Health Street for $184 million.
“Healthcare IT vendors that enable health insurers to improve clinical outcomes while reducing expenditures are increasingly becoming attractive acquisition candidates,” said Jonathan Krieger, Managing Director at Berkery Noyes. “In addition, with the ongoing implementation of the Affordable Care Act, there is more of an emphasis on value based reimbursement models,” stated Krieger. “The medical loss ratio (MLR) mandates imposed on health insurers continue to act as a catalyst to outsource non-core competencies as well.”
M&A activity in the Medical Education segment rose 78 percent on a year-to-year basis, making it the segment with the largest volume increase. Regarding transaction volume in some of the industry’s other market segments, there was a 27 percent rise in Healthcare Business Services and a 35 percent improvement in Consumer Health Information between 2011 and 2012.
Furthermore, there was a 50 percent increase throughout the past twelve months in the industry’s mobile application subsector. “Mobile solutions have the potential to play an increasingly important role,” said Jeffrey Smith, Managing Director at Berkery Noyes. “In the pharma sector for instance, mobile applications can streamline data collection, facilitate communication during the clinical trial process, and help lab researchers in their recruiting efforts to find prospective subjects. Tech oriented companies with one or more of these capabilities are likely to continue drawing interest from potential acquirers.”
A copy of the HEALTHCARE/PHARMA INFORMATION AND TECHNOLOGY INDUSTRY M&A REPORT FOR FULL YEAR 2012 is available at the Berkery Noyes website.