The report, conducted by mid-market investment bank Berkery Noyes, analyzes industry M&A activity during 2012 and compares it with data from the previous two years. 

 

Findings show that total healthcare IT M&A transaction volume increased 21 percent annually, while aggregate transaction value increased 5 percent, from $11.36 billion in 2011 to $11.96 billion in 2012. Private equity firms were responsible for four of the industry’s top 10 highest value deals during 2012. The most active financial sponsor in the report over the past year was TPG Capital with five transactions. 

 

[See also: M&A can be hazardous to health IT.]

 

“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,” Thomas O'Connor, managing director at Berkery Noyes, told Healthcare IT News.

 

Healthcare IT also saw an 11 percent increase in deal flow for the year and accounted for 41 percent of the industry’s aggregate transaction volume. 

 

“The robust level of M&A activity shows that there are plenty of desirable, fast growing companies – many privately owned and SaaS enabled solutions – that are attracting very high multiples and appealing to both strategic and financial acquirers," said O'Connor. "In addition, the expiring favorable tax treatment on capital gains helped push some sellers to complete transactions this year. We expect to see a lot of smaller, SaaS enabled solutions in attractive niches and rapidly growing companies come to market in 2013 and attract robust prices.”

 

According to O’Connor, “The overall deal flow showed in general more transactions but smaller enterprise value deals getting done. The current market, due to large macro/regulatory changes in healthcare and a massive shift to electronic solutions, presents a very favorable climate for sellers with unique offerings, scale, recurring revenue models (SaaS) and rapid growth in attractive niches that are looking to capitalize on the high level of interest in healthcare information and technology solutions.”  

 

Meanwhile, transaction volume in the industry’s revenue cycle management subsector increased 37 percent from 2011 to 2012. One of the largest related transactions in 2012 was Sutherland Global Services’ announced acquisition of Apollo Health Street for $184 million. 

 

“Healthcare IT vendors that enable health insurers to improve clinical outcomes while reducing expenditures are increasingly becoming attractive acquisition candidates,” said Jonathan Krieger, managing director at Berkery Noyes, in a company press release. “In addition, with the ongoing implementation of the Affordable Care Act, there is more of an emphasis on value based reimbursement models,” Krieger said. 

 

M&A activity in the medical education segment increased 78 percent on a year-to-year basis, making it the segment with the largest volume increase. Regarding transaction volume in some of the industry’s other market segments, there was a 27 percent rise in healthcare business services and a 35 percent improvement in consumer health information between 2011 and 2012. 

 

Furthermore, there was a 50 percent increase throughout the past 12 months in the industry’s mobile application subsector. “Mobile solutions have the potential to play an increasingly important role,” said Jeffrey Smith, managing director at Berkery Noyes, in a company press release. “In the pharma sector for instance, 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. Tech oriented companies with one or more of these capabilities are likely to continue drawing interest from potential acquirers.”

 

So what does the future hold for industry M&A activity? O'Connor said current trends are likely to continue for the new few years, as providers are looking to simplify and consolidate systems. "I think we’ll continue to see, over the next five to seven years, the consolidation of healthcare services and solutions because we have a lot of disparate, niche players, and in the end people don’t want a thousand different vendors.