There is a notion among relatively inexperienced investors that M&A transactions between healthcare providers are risky because of the technical, regulatory, and commercial factors considerations. Such idea, however, is largely misguided.
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According to a study that covered market activities between 1995 and 2008, nearly 60 percent of mergers and acquisitions completed by health care companies had a much higher return on investment compared to pharmaceutical and medical technological indexes in the same time frame.
A closer examination of all the M&A transactions between health care companies reveals common characteristics among the entities. Firstly, through frequent acquisitions of the company of interest, the acquirers steadily develop their strength and framework. According to the data, the companies which yielded the highest returns were frequently acquired, with nearly one closed transaction per year.
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The size of the deal also plays a role in the transaction’s success. The manufacturers that did better concentrated on smaller “tuck-in” acquisitions. They executed the “string of pearls” strategy, where frequent acquisition of small assets resulted in increased and sustainable returns.
Health care companies also invest when other industries do not. They create opportunities which will result in them gaining great value through mergers and acquisitions—when the downturn is more broad-based and extended. For instance, in the 2001 recession, the health care industry overtook the telecom and energy department by as much as 17 percent.
Generational Equity guides owners entering the M&A process in all stages of stock or asset sales, company restructuring, and divestitures. For more about the company and its services, visit this website.
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