They don’t call it March Madness for nothing. After a few months of slowing merger and acquisition activity, deal volume spiked back to 2016 levels. The 139 deals announced in March 2017 were only 4% below the 145 deals announced in March 2016, when healthcare M&A was barrelling along.
Deal volume was 46% higher than the previous month’s 95 transactions, but that’s not a fair comparison. February is the shortest month, and March always seems to drag on and on. Besides, the early days of the Trump administration were (and still are) tempestuous, to say the least.
March 2017’s increase in activity may be a signal that investors are just going to get on with their plans, or it may be they are taking Fed chairwoman Janet Yellin seriously when she says the recent interest rate rise was the first of a few to come this year.
Year-over-year comparison in deal volume shows some sectors remain popular, while others seem shunned. The Medical Device sector suffered a 62% decline, going from 13 deals announced in March 2016 to just five this year. Some part of that drop may be attributable to the 2.3% excise tax enacted in January 2013 as part of the Affordable Care Act. At the time, big device makers laid off workers in anticipation of a major slowdown. The hardest hit by the tax, however, were the start-ups and small manufacturers. We were warned by some analysts that the resulting bankruptcies and company closures stifled needed innovation, and that, in a few years’ time, the sector would feel the pinch of fewer products in the pipeline. That seems to be coming true.
On the flip side of that coin, the Biotechnology sector enjoyed a 47% year-over-year pop in deal volume, from 15 to 22 deals, precisely because small start-ups have kept innovating (and getting bottomless funding from eager investors).
Dollar volume tells a different story. March 2017’s combined spending dropped to $4.8 billion, -47% compared with the previous month’s $9.1 billion, and -64% compared with the $13.5 billion spent the year before. Of course, 2017’s monthly spending totals will likely increase, once all the 8Ks and 10Ks are filed. But it’s unlikely we’ll find many billion-dollar transactions hiding in all the paperwork. Dollar volumes dropped in every sector in March 2017, with the exception of Other Services. That anomaly occurred because of a single deal, the largest announced in March 2017, as American Securities LLC came to the rescue of Air Methods Corporation (NASDAQ: AIRM), an air ambulance company fighting a losing battle with an activist investor. American Securities, a middle-market private equity firm, paid more than $2.4 billion to get into the medical transportation business.
Looking ahead, House Republicans are signalling they’re ready to revisit the failed American Health Care Act, as the Trump administration is pressing on with tax reform. Rumors of a coming White House staff shake-up are drawing attention away from the agenda, for the moment. Mr. Trump thrives on chaos and drama, but very few investors do. We’re still waiting for the Trump bump.
