Although a significant measure of merger and acquisition (M&A) deals are often deemed ill-fated and potentially hazardous to a company's health, a recent report reveals that healthcare IT M&A activity has seen considerable success in recent years (the much-cited Allscripts-Eclipsys merger aside, of course).
The Jan. 11 report, conducted by investment bank and advisory firm Berkery Noyes, analyzed M&A for 2012 and compared it to the previous two years.
Findings show a 21 percent increase in total healthcare IT transaction volume and a 5 percent increase in transaction value - pegged at $11.96 billion - annually.
According to the report, private equity firms were involved in four of the industry's top 10 highest value deals during 2012. San Francisco-based firm TPG Capital was the most active financial sponsor in the report over the past year, officials said.
Healthcare IT saw an 11 percent increase in deal flow for the year while accounting for some 41 percent of the industry's total transaction volume.
Officials said with these deals there has been a growing trend of companies acquiring smaller companies in their niche market, with the goal of industry consolidation as a major driver. These smaller, strategic deals are bringing in big returns on investment.
"There is the occasional Allscripts deal out there, but most of the deals are smaller, tactical acquisitions, because a lot of times the faces are new and growing in the marketplace," said Thomas O'Connor, managing director at Berkery Noyes. Most of the deals, he said, are under $100 million, enterprise value, but they're smart deals, ones with big ROI returns.
Moreover, because healthcare is historically years behind finance and legal in terms of advancements, entrepreneurs have flocked toward the healthcare field. "We are seeing [healthcare] technology sent to private equity groups, who are not healthcare centric per se, but who are pulling toward healthcare because healthcare is in desperate need of technology innovation and fresh ideas, and fresh capital," O'Connor added.
"You're seeing a plethora of software solutions and products that help administrators and physicians, whether on the business side or on the clinical side, get information," he said.
"Healthcare IT vendors that enable health insurers to improve clinical outcomes while reducing expenditures are increasingly becoming attractive acquisition candidates," Jonathan Krieger, managing director at Berkery Noyes, said. "In addition, with the ongoing implementation of the Affordable Care Act, there is more of an emphasis on value based reimbursement models."
Another segment within healthcare IT that saw a boom in 2012 was the mobile health sector, which increased a whopping 50 percent.
"Mobile applications can streamline data collection, facilitate communication during the clinical trial process, and help lab researchers in their recruiting efforts to find prospective subjects," said Jeffrey Smith, managing director at Berkery Noyes. "Tech oriented companies with one or more of these capabilities are likely to continue drawing interest from potential acquirers."