Health care companies are attractive acquisition targets

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On behalf of Daniel Watkins of Watkins Firm, A Professional Corporation posted on Thursday, November 17, 2011.

Market saturation and recent profit margin-squeezing health care reform have made one sector of the health care industry a prime target for companies seeking acquisitions.

San Diego mergers and acquisitions attorneys have noticed that large, managed health care companies are struggling to maintain their earnings growth and are looking for smaller outfits that can be acquired to help buoy profits.

Depending on the companies involved, these deals can boost a company’s stock value by more than 50 percent.

While health care reform has handicapped major managed health care companies, smaller industries have taken advantage by tying themselves to niche markets and faster-growing small companies. Their earnings growth — compared to a leveling off of earnings growth among major companies — makes these companies attractive acquisitions because they can improve a larger company’s profit margin.

Since the industry does not have space for new growth among existing companies, those companies — large ones in particular — will likely need to snap up smaller companies and the industry space they occupy in order to maintain a revenue stream. This is likely to result in a vast number of mergers and acquisitions within the health care industry in the coming months and years.

Investors are also uncertain over how, or if, the health care reform plan will be implemented in 2014. This cloudy future for the health care industry has some investors choosing to play it safe and acquire valuable assets to prepare for a range of possibilities.

Source: Barron’s “The Next Wave of Health-Care Mergers” Oct. 22, 2011