Financial buyers, which include real estate investment trusts (REITs) and private equity firms, are not dominant players in the health care M&A market, although a few REIT deals have popped up in the Behavioral Health Care and Hospital sectors in recent years. But they have been very active. Valuations in several of the services sectors have kept many middle-market private equity firms on the side lines, as auctions may now include non-healthcare companies like Amazon, Best Buy and Walmart. More often, strategic buyers outspend or even pre-empt an auction.

Financial buyers are bullish on the healthcare market. In the fourth quarter, they accounted for 24% of the deal volume, with 120 deals, which is higher than any of the preceding four quarters.

And they put their money to work. Spending was the highest we’ve ever seen in one quarter, close to $13.0 billion, based on 36 deals with disclosed prices. This outsized total includes Veritas Capital’s $5.7 billion takeover of athenahealth, Advent International’s $2.2 billion deal for Sanofi’s Zentiva division and Centerbridge Partners’ $1.4 billion take-private deal for Civitas Solutions.

Of the 120 deals announced by financial buyers, 103 were made by private equity firms and 17 by real estate investment trusts. Fifteen deals announced by REITs were in the Long-Term Care sector, in addition to an ambulatory surgery center hospital and one transaction that included three medical marijuana dispensaries in California (2) and Nevada (1).

The targets were more varied for the private equity buyers and covered every sector except Managed Care. They included Long-Term Care (29 deals), Other Services (15), eHealth (13), Behavioral Health Care (12) and Physician Medical Groups (11).  Six deals were announced for Home Health & Hospice targets, five for Rehabilitation targets and four in the Medical Device sector. Only three deals targeted Pharmaceutical targets. The Hospital and Laboratories, MRI & Dialysis sectors each had two deals and Biotechnology had one.

Q4:17

Q1:18 Q2:18 Q3:18

Q4:18

Deals announced

79

89 112 101

120

Share of deal volume

20%

20% 23% 21%

24%

Dollars committed*

$2,279

$3,096 $25,881 $1,409

$12,975

Share of dollars spent

2%

3% 18% 5%

31%