Bloomberg Law
Free Newsletter Sign Up
Bloomberg Law
Welcome
Go
Free Newsletter Sign Up

Health-Care Dealmaking Slows as US Inflation Hits Record High (1)

June 30, 2022, 9:42 PMUpdated: July 1, 2022, 8:32 PM

Health-care dealmaking decreased in May under the pressure of record-setting inflation.

The number of completed or announced mergers and acquisitions was 154 in the month, down from 176 in April. The May total also marked a sharp drop from January, which saw 274 transactions.

Overall economic trends and supply chain issues point to a slowdown in transaction activity in many areas of the economy, but the health-care industry has unique characteristics that could support robust deal volume, said Gary Herschman of Epstein Becker & Green in Newark, N.J.

These include a large amount of “dry powder” in the hands of investors, and the sector’s tendency to be recession-proof, he said.

“This could result in increased health-care transaction activity in the short-term as investors may seek to utilize funds for acquisitions before interest rates potentially spike much higher over the next 12 months or more,” Herschman said.

The busiest sectors in May were life sciences, medical devices, health-care IT, and physicians services, each of which easily surpassed 100 deals so far in 2022 and are likely to lead the pack through the rest of the year, analysts say.

Covid-19 still remains a wild card, however, according to Larry Kocot of KPMG in Washington.

The average daily number of deaths from Covid continues to decline slowly, but the overall number of cases has fluctuated over the past month with the emergence of new variants.

Also of concern is the lack of a clear pandemic response plan from the White House or Congress, which could discourage health-care investors, Kocot said.

KPMG in Washington and FocalPoint Partners of Chicago prepared the curated year-to-date list and list of select May transactions for Bloomberg Law.

Pfizer Acquisition

The life sciences and pharmaceuticals sector saw 35 transactions in May, a slight decline from April’s total of 38.

Several factors could support continued strong deal volume in the subsector despite economic headwinds, Kocot said. These include the FDA’s decision to authorize Covid-19 vaccines for young children, a strong pipeline of new innovations, and plenty of investor money awaiting solid opportunities.

“Life sciences and pharmaceuticals should remain an attractive area for investment in comparison to other sectors of the healthcare economy,” Kocot said.

The standout transaction for the month was Pfizer Inc.‘s announcement that it will acquire Biohaven Pharmaceutical Holding Co., Hector Torres of FocalPoint Partners in Chicago said. The deal will include the acquisition of Biohaven’s calcitonin gene-related peptide program (CGRP), and will result in the formation of a new entity under the name of New Biohaven.

The proposed acquisition will provide Biohaven the resources needed to continue rolling out its CGRP franchise and focusing on research and development, Torres said.

Physician Practices

Deals in the dermatology sub-sector of physician practices continued at high levels, with four transactions closed in May, Torres said.

DermCare Management, an innovative dermatology-management company based in Hollywood, Fla., acquired three California-based dermatology practices: Berman Skin Institute, Westchester Dermatology, and Lasky Skin Center. These acquisitions add 14 locations to the DermCare network, further establishing the company’s presence in San Francisco and statewide in California.

The orthopedic sports medicine sector saw two notable transactions, Torres said. These included the acquisition by Healthcare Outcomes Performance Company, an orthopedic practice-management company in Phoenix, of Pennsylvania-based Premier Orthopaedic & Sports Medicine Associates Ltd. Healthcare Outcomes said its focus is helping shift orthopedic practices into value-based care payment models.

In addition, US Orthopaedic Partners acquired SportsMED Orthopedic Surgery & Spine Center, based in Huntsville, Ala. US Orthopaedic now has 34 locations across Alabama and Mississippi.

Health IT

Deal volume in the healthcare IT and software sector remained strong despite national and global economic trends, said Anjana Patel of Epstein Becker & Green.

“Investors continue to see huge potential long-term windfalls from investing in technology capable of delivering and monitoring care across multiple virtual settings,” she said.

Deal volume for home-health and hospice transactions dipped in May, but overall investor interest remains strong due to expected demand from an aging population, she said.

The medical devices and supplies sector saw 23 deals in May, placing in No. 2 among subsectors for the second month in a row, but the total still marked a significant drop from April’s total of 30 deals, Kocot said.

One notable deal in the subsector was the announced $255 million acquisition by CONMED Corp. of In2Bones Global Inc., an international maker of medical devices designed to treat extremity injuries, said Timothy McHale of Epstein Becker & Green.

Epstein Becker Green and KPMG did not comment on any particular transaction or party discussed or listed in this article.

Bloomberg Law’s Health Care Transactions Editorial Committee contributed guidance for this report. Members include Gary W. Herschman, of Epstein, Becker & Green PC, Newark, N.J. (gherschman@ebglaw.com); Anjana D. Patel, of Epstein Becker & Green PC, Newark, N.J. (adpatel@ebglaw.com); Timothy C. McHale, of Epstein Becker & Green PC, Newark, N.J. (tmchale@ebglaw.com); Larry Kocot, of KPMG, Washington (lkocot@kpmg.com); Carole Streicher, of KPMG, Chicago (cstreicher@kpmg.com); Ross White, of KPMG, Washington (rosswhite@kpmg.com); Hector M. Torres, of FocalPoint Partners, Chicago (htorres@focalpointllc.com); Jordan Coley, of FocalPoint Partners, Chicago (jcoley@focalpointllc.com); Ryan DeBlaey, of FocalPoint Partners, Los Angeles (rdeblaey@focalpointllc.com); and Michael Stotz, of FocalPoint Partners, Chicago (mstotz@focalpointllc.com).

(Updates with additional detail on Healthcare Outcomes Performance Company in 18th paragraph; a previous version of this story corrected a description of the company)

To contact the reporter on this story: Christopher Brown in St. Louis at ChrisBrown@bloomberglaw.com

To contact the editors responsible for this story: Alexis Kramer at akramer@bloomberglaw.com; Cheryl Saenz at csaenz@bloombergindustry.com