Obesity and M&A
September 27, 2010
For every super-sized meal at a fast food restaurant, it costs an extra $8 in lifetime spending to "sustain a heavier body." Investors, it seems, are keen to capture as much of that extra spend as possible.
That probably qualified as one of the more absurd stats that came out of the ACG LA business conference last week. But it speaks to why the smart money seems to be alternating between fast food buyouts and investments in healthcare. Suddenly, the synergies between Friedman Fleischer's Church's Chicken and Guardian Home Care seem pretty obvious.
Michael Milken's lunchtime address at the ACG LA conference touched on a lot of other key points. The benefits of immigrant labor, the country's dependence on foreign oil, the impact of non-recourse mortgages, and of course his favorite subject, the value of non-investment grade debt were just a few of the areas he covered.
Milken's take on healthcare, though, seemed to underscore the opportunity so many investors are looking to chase down, which is America's dependence, not on foreign oil, but Doritos and Cheez Whiz. In subsequent slides, Milken highlighted the price to earnings ratios of top consumer companies, like Kraft and Coca Cola, and contrasted those with the valuations being fetched by the pre-eminent healthcare names. Kraft, for instance, has a P/E above 15 while Pfizer can't get more than 7x for its shares.
Another slide identified that roughly 70% of healthcare spending -- amounting to $2.5 trillion -- is spent on "lifestyle-related" diseases.
There are a host of reasons so many sponsors have rushed into healthcare over the past year. A lot of people will point to the aging baby boomers or the government's healthcare reform bill. I think Milken, though, rightly identifies the factor that will keep investors in the space happy, which is that until we have the will to alter our lifestyles, healthcare costs are going to continue to climb. It's as much of a bet on the Millenials and Generation X as it is on the Boomers.
A few hours after Milken's key note, I proceeded to drive into a Carl's Jr. for a Double Western Bacon Cheeseburger... and yes, I super-sized it.
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