In the third quarter of this year, 207 deals were announced across 13 sub-sectors of the industry, according to the most recent Health Care M&A Report. While that's down 14% from the 240 deals announced in the second quarter of 2002, it's also a 14% jump from the 181 deals of the third quarter of 2001, according to the report, which was released Tuesday, Oct. 22.

"Even with the stock market meltdown, the healthcare M&A market has retained its vitality while deal volume in other sectors has plunged," the report noted.

Measured by dollar value, healthcare deals in the third quarter more than quadrupled, to $68 billion, from $16.6 billion in the second quarter of this year.

Much of that value was generated by Pfizer's pending purchase of Pharmacia. The merger is the largest so far this year and the third-biggest merger ever in the pharmaceuticals sector. It also pushed the healthcare industry into the first rank among all sectors of the M&A market for 2002, with $92 billion spent to finance nearly 660 deals to date, according to the report.

The banking and finance industry ranks second, with one-third the dollars spent and one-third the number of deals.

"Even without the Pfizer-Pharmacia deal, the healthcare industry is maintaining its historical levels of M&A activity, both in volume and in dollars spent. The hospitals, medical devices and pharmaceuticals sectors continue to garner the greatest amount of attention, and capital, from investors," said Sanford B. Steever, editor of the report.

During the first nine months of this year, global M&A volume was about $903 billion down more than 33% from $1.35 trillion during the same period in 2001, according to Thomson Financial. M&A in the telecommunications, technology, and media sectors have seen the largest fall-off in activity.

"Even when the overall economy lags, consumers tend to place healthcare services and products ahead of other purchases," said Stephen M. Monroe, a partner at Irving Levin Associates Inc., of New Canaan, Conn., which publishes the report. "This ensures that money will continue to flow into the industry and, consequently, that investors and dealmakers will continue to make it a primary focus."

He added that if current levels continue, there will probably be a total of 850 deals in the healthcare industry this year worth about $100 billion. "The dollar value of the deals announced will be one of the highest for healthcare in the past 10 years," he added.

Within the healthcare technology subsector, the medical devices area showed the most activity in Q3, with 43 deals. That's up 19% from 36 deals in Q2 and up 72% from 25 deals in Q3 of last year.

In the services subsector, hospitals led the pack, with 20 deals announced in Q3. That's up 82% from 11 deals in Q2 and 18% from 17 deals in Q3 of last year.

The other areas that showed an increase in deals from Q2 were physician medical groups (up 10%) and pharmaceticals (up 14%).

Still, most of the healthcare subsectors saw at least some a decline in deals during the third quarter from the previous quarter. Biotechnology M&A tumbled 14%, to 18 deals from 21 in Q2 and fell 31% from the 26 deals in Q3 2001. The so-called e-health sector plummeted 58%, from 19 deals in Q2 to 8 deals in Q3 this year. It's down 50% from Q3 2001.

Other areas where deals have declined include long-term care, laboratories, home health, managed care, rehabilitation and behavioral health.

Irving Levin is a privately held corporation that publishes research reports and newsletters, and maintains merger and acquisition databases, on the healthcare and senior housing markets.

-- Josh KarleN