While many M&A pros fear that the slew of health care laws and regulations that took hold during President Barrack Obama's presidency may chill dealmaking, there is a silver lining, says Steven Gerst of investment bank StillPoint Capital LLC. New regulations, such as the 2.3 percent excise tax on medical devices that went into effect on Jan. 1, may worry some private equity and strategic buyers. However, both the medical device and health care information technology (IT) sectors continue to be a vibrant playing field for buyers due to hospitals and private practices being mandated to invest in new technologies, such as electronic medical record systems, Gerst explains. We caught up with Gerst at the recent Alliance of Merger & Acquisition Advisors' (AM&AA) Summer Conference in Chicago. A health care IT specialist, Gerst is also a vice president at clinical decision software provider MedCurrent Corp. and senior vice president of MZI Healthcare LLC.

How is the new health care law affecting deal flow?

Between the Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009 and the Affordable Care Act of 2010-known as ObamaCare-those two laws are driving tremendous investment opportunity and growth, primarily in two sectors: health information technology and medical devices. Those are the two fastest-growing areas. Companies like McKesson Corp. (NYSE: MICK) and Aetna Inc. (NYSE: AET) plan to spend at least $1 billion each buying health IT companies.

Why are these sub-sectors of health care seeing the most uptick in M&A?

They're driving the highest multiples. This trend is leading to major consolidation because as soon as these companies are formed and as soon as they hit a level of profitability that is attractive to the middle market, they're being purchased by both insurance companies and aggregators. The government is primarily driving it, too. The HITECH Act subsidizes the cost of, or purchase of, electronic medical record systems providers, which are increasingly being bought by physicians in private practice and hospitals. The government now penalizes hospitals for not using EMRs and so they must attest to using EMRs meaningfully.

Are more PE firms noticing the potential deal opportunities within health care?

I think very few private equity firms have the depth of expertise in health care to understand the value and size of what's coming with the new law. They come to me with a lot of deals and I got about four on the table right now, mostly in health IT. One is a group in Texas that has a pediatric home care company. A lot is driving off this new health care reform because doctors are required to have all of these new technologies. And every doctor must have these technologies. This is leading to investments in bundled payment software providers which tie together the revenue of 9,000 doctors across the country. That's why Athenahealth Inc. (Nasdaq: ATHN) traded at 52 times earnings in 2012.

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