For Healthcare M&A, 2011 Among Best Years

The 87% boost in the dollar volume for managed care M&A, from $4.2 billion to $7.9 billion, probably reflects Cigna's $3.8 billion acquisition of HealthSpring, a Medicare Advantage health plan. Several other insurers also purchased established Medicare Advantage health plans in 2011. "When regulations are involved it's always easier to purchase existing operations than to try and build from the ground up," Steever explains. Interest in Medicare Advantage is driven at least in part by the aging baby boomer population.

The survey results from HealthLeaders Media suggest that the managed care segment may be primed to continue to grow in importance. Among C-suite respondents, nearly one in five (18%) listed insurance/payer plans as a high interest. Hospitals facing declining patient volumes as well as declining case mixes want to be more involved in the healthcare financing piece of healthcare delivery.

In terms of the total dollar value, medical devices ($63.5 billion), pharmaceuticals ($44.5 billion), and biotechnology ($32.7 billion) were the leaders of M&A deals in 2011. Steever says he expects interest in pharma to shift as more and more drugs hit their patent cliffs. That means they'll need to develop more blockbuster drugs or acquire interest in biotechs or generic drug companies.

The dollar value of biotech deals fell by 46%, while the number of deals dropped by 39% in 2011. Steever says that may reflect a shift in equity funding from start-up and early stage biotechs to other areas.

The availability of capital is not expected to constrain the M&A markets. Steever notes that many large companies have strong cash flow with funds available for acquisitions. Things are tighter for smaller companies, though.

Steever does point to the election year and the European economy as influencing the M&A market. The possible change to another government makes providers nervous about reimbursements and makes potentials deals more difficult to assess. He says the European economy still "has some healing to do. The markets can be volatile, investors are nervous, and due diligence takes more time."