2014 has been the most active year for health care deals in the past twenty years. Globally, health care is accountable for approximately $438 billion worth of mergers and acquisitions, according to Dealogic. It is also the best performing industry group on Standard & Poor's 500 index, as it has increased 23% this year.
Ashytn Evans, an analyst from Edward Jones, believes the increase in health care M&As can be attributed to cost pressures on the system to consolidate because health plans are reducing reimbursements on drugs, devices and services. Evans also claims that companies are aiming to increase their market share and portfolios, especially in areas like cancer research.
Taxes are also a big reason for M&As. Larger U.S. pharmaceutical, biotech and medical device companies are seeking to make deals with oversee rivals, in order to move their headquarters to countries with lower tax rates and invest more in research and development.
The M&A's could result in patients receiving an increase in new medicines and devices in the future. However, patients may also have less access to doctors and hospitals as companies combine to decrease costs. The mergers may also be accountable for job losses in areas like administration and sales, but not in R&D. In general, mergers are beneficial for stocks because the acquiring company usually pays a premium over the market value to gain approval from shareholders of the target company.
Private equity firms have been investing in companies needing funds for research and development, in hopes of profit through IPOs (initial public offerings) or through selling to larger rivals. According to David Hillman, a partner at Schulte Roth & Zabel LLP, hospitals have also been active via buying traditional family practices and outpatient clinics to gain new patients in their systems.
Summary by MedicalGroups.com
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