Thursday, October 22, 2009: Issue #1121

With the healthcare debate still raging in Washington, this should shock you…

Healthcare mergers and acquisition (M&A) activity is at an all-time high.

You'd think with so much uncertainty surrounding the future of the industry, the dealmakers would be as lonely as a geek on prom night.

But that's just not so.

• Based on the dollar value of transactions, roughly one-third of all deals in the United States this year involved healthcare companies – considerably higher than the historical average of 10%, according to Dealogic.
• And based on the number of transactions, about 13% of all deals in 2009 have involved healthcare companies. Again, that's notably up from the historical average of 9%.

Let me share why we can expect the record-setting activity to continue – and, of course, three ways to capitalize on it.

What's Greasing the Skids for Healthcare M&A Activity?

At first glance, you might question the savvy of healthcare executives to make acquisitions in such an uncertain climate. After all, healthcare stocks have significantly lagged behind in the S&P 500 rebound, rising only 9.6% compared to a 20.8% increase for the Index, year-to-date.

But rest assured, they're not buying blindly. In fact, the companies at greatest risk of cost cuts (and, in turn, less profits) – insurers, hospitals and nursing homes – remain on the sidelines.

Instead, it's companies in other categories – like drug makers, research labs, equipment manufacturers and healthcare technology companies – that are so acquisitive. Here's why…

Regardless of the end result of the legislation in Washington, one thing is glaringly obvious: millions more Americans will get healthcare coverage. And that represents millions more potential customers.

Companies are simply jockeying for position, so they can capture a larger share of the new demand.