Will uncertainty drive more mergers?



The last couple of years have been fairly sizzling in terms of mergers and acquisitions. Irving Levin Associates, the Connecticut-based firm that analyzes such activity in healthcare, reported nearly 2,000 deals combined in 2010 and 2011. The number of transactions was about evenly divided by year, although Irving Levin puts a $227.4 billion pricetag on last year's activity.

That's up 10 percent from 2010, suggesting there were slightly less desperate sellers chasing after deeper pockets. Still, the number of deals still trails the pre-recession numbers of 2006, when $268.4 billion worth of transactions were closed.

But Leslie Levinson (pictured), partner in the New York law firm Edwards Wildman Palmer and chair of its healthcare group, expects 2012 to continue the upward spike. However, Levinson sees it less as a reveling of cash than as taking stock in a hard-eyed way. 

"It's going to be an interesting and potentially dynamic year for M&A," said Levinson, whose firm focuses on such dealmaking. "But I think it's going to be more toward making a stark assessment for the next year or two or three," he told FierceHealthFinance.

"The question that will be asked, am I going to stay the course, or hypothetically, if I can get a four or five multiple (of earnings as a sales price), should I take it? Do I run the risk that the offer will be only a two the following year?"

Levinson, whom I spoke with shortly before the U.S. Supreme Court heard oral arguments on the constitutionality of the Patient Protection and Affordable Care Act, believes a lot of providers will have a tough go of making their numbers in the coming years.

"You've got state budgetary pressures that are being felt nationwide. You've got cuts coming down from the federal government. ... I have a pretty contrarian position in that it will be a good year for mergers, but if you have a pretty healthy business and can get a good return, it might be time to sell now," he said. Levinson later added that he felt the Court would come to a split decision, striking down parts of the ACA while upholding others. However, he did not believe the decision either way would impact the current trends in dealmaking.

Levinson did agree on the observations I've made in the past that private equity operators are getting into healthcare M&A in a way they have not in years past. "They want to get more educated in terms of where there is a value opportunity," he noted.

Partly as a result, Levinson expects to see more not-for-profit operators turning into for-profits. But the dealmaking will remain relentless either way.

"When you're looking at properties, and there is not one cloud but five or six looming, it tends to measure your prospective," he said. - Ron (@FierceHealth)

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