Still Plenty Of Dry Powder For More Health Care Acquisitions in 2016
As this Bloomberg article states, 2015 was a gangbusters year for M&A activity in the health care sector. The record setting year ended with “$605 billion” total in health care takeovers, with the majority coming from the pharma and biotech industry. While it is difficult to project whether the health care sector can break 2015’s record in the coming year, one thing that is for certain is there is still ample room on company balance sheets for more M&A activity.
The median health care company in the developed world has over 13% of its assets in cash. This is the second highest level of any sector behind information technology (21.14%). The median health care company has about twice as much cash on its balance sheet than the overall median company in the developed world. If we break health care out by its sub-industry groups we see that the amount of cash varies greatly. The median health care facilities company only has 1.86% of its balance sheet in cash while the median biotechnology company has over 30% of its balance sheets. Considering that a majority of takeovers last year occurred in biotech and pharmaceuticals, it seems that both sub-industry groups remain well positioned for further M&A activity.
Health care companies overall seem to have pretty liquid balance sheets. The median health care company has about a quarter of its capital in long-term debt. This is less than the median developed world company which as about a third of its capital in long-term debt. Health care companies have about half as much long-term debt as a percentage of their total capital compared to utilities and telecom. Cash also makes up a much larger portion of health care companies capital base. The median health care company has over 20% of its capital base in cash compared to just 10.78% for the median company in the developed world. Biotech again leads the way for the sector as cash accounts for 38.34% of its capital base.
