The outlook for mergers and acquisitions in the healthcare/pharmaceutical information technology industry remains strong despite fewer transactions in 2013. But a broader mix of acquirers is looking to purchase companies that can improve clinical outcomes while reducing expenditures, according to a white paper from investment banker BerkeryNoyes.

And in a separate market brief covering the just-ended first quarter of 2014, BerkeryNoyes said both strategic and financial buyers were flush with cash, but there remains a lack of high-quality opportunities in the market.

“The breadth of acquirers continues to expand, as buyers look to capitalize on the size, rapidly evolving dynamics and growth characteristics of the healthcare market,” said Thomas O’Connor, BerkeryNoyes managing director. “In addition, acquirers are aggressively looking to broaden product suites, leverage distribution channels, realize revenue and gain cost synergies.”

The most active acquirer in 2013 was Constellation Software, which made five transactions, while the largest healthcare IT deal was Experian’s acquisition of Passport Health Communications for $850 million.  

Healthcare IT deal flow remains strong for companies developing proprietary technology/content and that have double-digit revenue growth, a high percentage of recurring revenue and a large addressable market opportunity. M&As within Healthcare IT made up about 40% of the 712 healthcare M&As over a two-year period, between the beginning of 2012 and the end of 2013, noted BerkeryNoyes.

“Large strategic buyers also are looking to acquire unique content/software solutions that are solving challenges in the healthcare market and are growing rapidly, offering exit opportunities for entrepreneurs at attractive prices,” according to the white paper. “In addition, with the ongoing implementation of the Affordable Care Act, there is more of an emphasis on value-based reimbursement models.”

The strongest portion of healthcare IT activity was in the pharma IT segment, which saw the largest year-to-year rise in M&A deal flow with 32 transactions in 2013—a 45% increase over the 22 deals in 2012. Intellectual property (IP)-centric companies were the primary focus for M&A activity, including software solutions for drug discovery and development, clinical trials and regulatory compliance, as well as financial and operational data analytics and new payment models, according to the white paper.

“The growth of software-as-a-service (SaaS) for specific niches and point-of-care information is highly visible, and M&A activity should be strong in the next year,” said O’Connor. “Those companies are growing fast and will attract high valuations.”

He said acquirers are looking to expand product suites, leverage their distribution channels and gain revenue and cost synergies.

“The big takeaway,” said O’Connor, “is small, fast-growing companies in cloud computing are growing at 40% a year, and should command prices that are four to five times their revenue.”