NORWALK, Conn.--(BUSINESS WIRE)--

In 2012, dealmakers committed $143.3 billion to finance the years activity in the health care merger, acquisition and takeover market. Although sizable, that total represents a 38% decline compared with the $231.0 billion spent in 2011. Last year ranks ninth out of the last 10 years in dollar volume, with only 2003s $94.2 billion coming in lower.

In terms of the number of health care deals announced, however, the year was one of the busiest in the past decade, with 1,063 deals, up 5.9% compared with 2011s 1,004. 2012 ranked second only to 2007, when 1,079 deals were announced. Both the technology and services sectors showed a modest gain in deal volume compared with 2011: the number of deals in the technology sector rose 2.0% and services increased by 8.9%.

Source: Irving Levin Associates, January 2013

Despite the uneven performance, some health care sectors turned in break-out performances, particularly on the services side. Home Health and Hospice recorded a 20.7% gain in deal volume (to 35 deals vs. 2011) and a whopping 1872.1% in dollar volume (to $5.7 billion vs. 2011). Typically deals in this sector are small, and conducted between private companies, so many deals, terms and prices are not made public. The question of Medicare reimbursement continues to hover, but with the Affordable Care Act beginning to take effect and more and more Baby Boomers expecting home health care services, this sector is poised for even higher growth.

Another sector that experienced high growth was Physician Medical Groups, although the number of deals in 2012 fell 37.0% compared with 2011, the dollar value of those deals shot up 845.6%, to $4.4 billion, thanks to the $4.2 billion acquisition of HealthCare Partners, Inc. by DaVita Inc. The strong recovery this sector has made since the recession ended is predicated on fact that a lot of hospital and medical systems are buying doctors groups as a way to control costs in the face of Affordable Care Organizationsand they want to lock in physician referrals to their own facilities. From the physicians perspective, receiving a steady salary and not dealing with reimbursement bureaucracies is becoming more and more attractive.

In addition, M&A deal and dollar volumes in the Behavioral Health Care sector grew 30.8% and 230.6%, respectively, compared with the previous year. Much of the 2012 growth is attributable to one public company, Acadia Healthcare Company, Inc. making five large dealsthe smallest was $33.4 millionfor in-patient facilities around the country. This usually quiet sector may see a lot more activity in the future, now that mental health issues have gained national attention and addiction has lost much of its stigma.

The fact that the number of M&A transactions was so high, despite the drop in dollar volume, indicatesa strong case of market breadth with buyers going after more strategic deals and not the blockbusters, stated Stephen M. Monroe, partner at Levin Associates.

By contrast, the technology sectorincluding Biotechnology, eHealth, Medical Devices and Pharmaceuticalssaw a substantial slide in announced deal value, down 41.6% for the sector overall compared with 2011. Medical Devices were hardest hit, declining 62.0% to $25 billion from $65.7 billion the year before. With the new federal tax on medical devices now in place, companies will be looking to pass the higher cost on to their customers, who will pass it along to patients and their payors. But start-up and early-stage medical devices are still attracting venture capital interest, so the pipeline will stay full and some may make it through FDA approval to marketand the M&A market.

Health care M&A activity will stay strong through 2013 as the services sector particularly looks forward to welcoming many more insured patients once the Affordable Care Act fully takes effect on January 1, 2014, said Lisa E. Phillips, editor of The Health Care M&A Report. The technology side could make a good comeback as the FDA issued a record number of approvals in 2012 and as those drugs and devices come to market. Biotech and Pharma are definitely on the media radar, as rumors are already swirling about potential targets and takeovers.

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Health Care M&A Spending Falls Nearly 40% in 2012, Lowest Year on Record since 2003, According to Irving Levin ...