Health Care M&A On Hold For Election, Court

  • Uncertainty clouds outlook for deals in sector
  • Watching Supreme Court, White House race
  • Concern of a ’herd mentality’ slows activity

It’s a waiting game in health care M&A as dealmakers look for resolutions to the health care reform law and the presidential election, according to buyout executives who attended the Jefferies global health care conference this month in New York.

Private equity investing in health care is on pause this year, according to executives speaking on the panel “Financial Sponsors Perspectives on Health Care Investing.” The industry is waiting to see whether Mitt Romney succeeds in overtaking President Barack Obama in the race for the White House this fall. Dealmakers also want some clarity on President Obama’s health care reform bill, the Affordable Care Act. The Supreme Court’s decision on the law is expected this month.

Health care M&A has slowed this year. So far there have been 1,073 global announced M&A deals, valued at $75.3 billion. This compares to 2,729 deals in all of 2011, which totaled roughly $229.6 billion, according to Dealogic. Private equity-backed transactions are even lower. This year has had seen 44 announced sponsor deals, valued at $3.6 billion. This is just a fraction of the 168 mergers in all of 2011, which collected $21 billion, Dealogic said.

The price disconnect between buyers and sellers has gotten even bigger due to uncertainty about the law known as Obamacare, one executive said. “Once we get clarity, and past Obamacare and the presidential election, we will see more deals,” the executive said.

Jim Momtazee, the head of the North American health care industry team at Kohlberg Kravis Roberts & Co., said that the Supreme Court’s decision on health care reform matters more than presidential election. “That bill is the most important piece of legislation since 1965,” Momtazee said during the panel.

There has been much talk about the private equity overhang, Momtazee said. Pitchbook estimates that the private equity overhang—capital committed by LPs but not yet called to fund deals—is currently $432 billion. “We’ve never had trouble investing a fund over the timeline allotted,” he said. However, sometimes KKR encounters a “herd mentality” where “everyone is thinking the same way and it’s hard to do deals,” he said.

But Momtazee said he thinks there is still lots of opportunity. “There are more companies out there for sale than companies that want to buy them.”

(Luisa Beltran is a senior writer for peHub.)