M&A in healthcare sector to set records in 2014

The year 2014 is shaping up to be the most active in healthcare mergers and acquisitions (M&A) in decades, the Associated Press reported.

The worldwide value of healthcare-related deals will reach $438 billion, about 14 percent of the value of all business M&A. The sector is on track for the largest volume of M&A since 2007, and possibly since the booming 1990s, according to the AP.

"Healthcare has been a sleepy niche of M&A until recently, but the giant has been awakened," Ken Menges, a senior partner at the law firm Akin Gump in New York, told the AP.

Among the drivers: drugmakers are buying up companies to control their costs and use up excess reservers of cash, the stock market continues to rise and interest rates remain low. And hospitals have indicated they will continue to buy up medical practices to better consolidate their operations. More than half of hospital leaders indicated last year that they intend to purchase practices, up significantly compared to prior years. And last month's $12.2 billion purchase of CareFusion by Becton, Dickinson & Co. is a major contraction in the healthcare supply business.

Providers also face the challenge of cutting their costs. "That in turn leads to ... combinations to make organizations more expense efficient, combinations for more economies of scale, people buying up smaller organizations that have developed an ability to deliver niche products," Healthcare Consultant Robert Laszewski told the AP.

This more efficient landscape has driven up healthcare stocks. The sector's stock value is up 23 percent so far this year, the best-performing group in the Standard & Poor's 500 index.

However, there will be potential fallout for patients, who may wind up having to pay more for care as the result of consolidation. They also may have more challenges finding providers, according to the AP.

To learn more:
- read the AP article