When Chase Manhattan Corp. stepped up last week with $1.3 billion in funding for Magellan Health Corp.'s purchase of Merit Behavioral Care Corp., it was just the latest sign of the robust state of health-care financing.
First Union Corp. and Credit Lyonnais are also acting as agents on $900 million in loans for Magellan, including a $400 million bridge loan that is to be refinanced with a high-yield bond next year.
With nearly $50 billion in health-care industry mergers and acquisitions announced in the first three quarters, lenders and deal makers say financing for the entire industry is now at full throttle.
Health-care financing "has been a bonanza this year," said James F. Flaherty 3d, managing director and sector head of health-care services with Merrill Lynch & Co.
"All the sectors have lit it up, from nursing homes, where you had some very large transactions, to hospitals where you've had some incredibly large acquisitions," he added.
Activity has been so strong, said Mr. Flaherty, that he plans to add 20 to 25 professionals next year to the 40 currently working in the health- care finance group at Merrill Lynch.
The two major sectors of health care-manufacturing and services-are growing, but in distinctly different ways.
On the manufacturing side, drug, medical-device, and biotechnology companies have grown in real terms-and so have their financing needs. They need funding for research and development, production, and new facilities, lenders said.
Real growth has been nominal among services companies such as hospitals, nursing homes, and medical testing companies. But merger and acquisition activity is brisk: 532 deals totaling nearly $20 billion were announced in the first three quarters, according to Securities Data Co.
Nursing homes, in particular, have had an M&A boom this year, said Trygve Mikkelsen, managing director and head of health-care M&A at Credit Suisse First Boston.
One of the largest deals in the long-term-care sector this year was the $1.88 billion merger and recapitalization of Living Centers of America and Grancare Inc. into Paragon Health Network Corp., completed this month.
That deal, sponsored by Apollo Management LP, was also financed in a one-stop deal by Chase and included a $990 million loan package and $450 million in high yield notes, plus about $200 million in equity funding from Apollo.
Leveraged buyout firms like Apollo, Bain Capital, and Kohlberg Kravis Roberts first entered several areas of health-care last year. The buyouts, spinoffs and restructurings they engineer have driven much of the current financing activity, said investment bankers.
Many sectors, including home health care and pharmacies, are still ripe for consolidation, with large numbers of mom-and-pop companies making up the bulk of those industries, said Mr. Mikkelsen.
The acute-care sector, consisting of both not-for-profit and for-profit hospitals, also has proved a steady source of activity, said bankers.
The planned restructuring next year of giant Columbia/HCA Healthcare Corp., a major acquirer, is expected to generate a host of new deals.
"Everybody seemingly has an idea of what to do with Columbia," said James A. Emslie, managing director and group head of health care at BankAmerica Corp.
The restructuring of Columbia is a "potential feeding frenzy." The "for- profit acute-care sector will see lots of action," said Mr. Emslie.