Dealmakers at The Deal's M&A Outlook 2008 conference at the Ritz-Carlton Battery Park in New York City next delved into the healthcare sector. It's November, and the $267.1 billion of healthcare deals done in 2006 seems an insurmountable mark. However, this year's first three quarters haven't been too shabby, as a total of 722 deals were announced in the healthcare industry worth a combined total of $173 billion, according to investment researcher Irving Levin Associates Inc.
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Michael Kaplan, leader of the healthcare team at Standard & Poor's, moderated the discussion as he and panelists Kenneth Berliner, president of Peter J. Solomon & Co., and Bristol Myers Squibb vice president of corp development Charles Simmons discussed the trends, opportunities and challenges for dealmaking in healthcare for 2008.
Berliner said most transactions in the industry will go for relatively high multiples (strategic buyers, now with less competition from their PE counterparts, will be paying them). The numbers, of course, are dependent upon the credit market. Simmons agreed.
Moderator Kaplan jumped in and turned the attention to the dollar. He said European companies have been active and we should expect that they will be more so for quite some time. Berliner responds that there is clearly a benefit with currency rates, but we'll still be seeing the same proportion of deals across the pond.
Kaplan said Big Pharma has political pressures on pricing and that the next presidential election will have a big effect on deals in the industry. Berliner added, "We can't talk about healthcare without talking about reimbursements as well," so financial sponsors are also a focal point. Simmons then said that obviously the industry is very regulated, but people feel good in certain sectors, such as managed care.
Berliner told the audience to look at deals right now: The industry is competitive and multiples reflect that. We should see the current rates to continue to be steady.
Looking at the nonfinancial firms, Simmons said, "I think strategics think it's an opportune time to deal." He also adds that we'll see a lot more stock deals.
Kaplan also pointed out that we should look at bigger factors in healthcare, such as aging demographics and the obesity epidemic. Of course, you don't want to start building all those extra nursing homes without looking at trends on a larger scale or you'll be left with assets that aren't fully usable.
Finally, Berliner said that healthcare will be a tremendous place to invest. "I don't see a slow down — but of course there are some overleveraged companies, that's true everywhere. But you'll see a less negative effect in healthcare." — Baz Hiralal
