In Ontario and elsewhere, home and community-based care is a fast-growing component in the health care system.Getty Images/iStockphoto
Two large Canadian investors are looking to grow in the health care space as deals blossom south of the border.
The Canada Pension Plan Investment Board and Onex Corp. both announced plans for new acquisitions on Tuesday, underscoring the hot market for U.S. companies that offer health support services, make medical devices or produce drugs, among other specialties.
CPPIB's investment comes in the form of a real estate deal. The pension fund said Tuesday morning that it would form a joint venture with Health Care REIT Inc. to buy part of a group of Southern Californian medical office buildings. Together, the two investors will own 50.5 per cent of the $449-million (U.S.) portfolio comprised of eight facilities in places such as Beverly Hills and Los Angeles. Some of these offices are occupied by plastic surgeons or dermatologists to the stars, the REIT's chief executive officer Thomas DeRosa said in an earnings conference call with analysts after the announcement.
It is CPPIB's first move into health care real estate, which the fund says is a growing and increasingly attractive area. "With an aging population and increasing demand for health care, we view the U.S. health care real estate sector as an attractive long-term investment," Peter Ballon, CPPIB's head of real estate investments Americas, said in a statement. He added that the partnership with Health Care REIT is just the beginning, with more deals likely to follow.
CPPIB's latest investment is on the fringes of a boom in health care deals. Global deal-making in the sector is almost certain to hit record highs this year driven by pharmaceutical companies combining, but also by mergers of health care service providers. Global health care deals are already nearing last year's record-setting $392.4-billion in mergers and acquisitions, according to data from Thomson Reuters.
The largest deal to hit the market so far this year was the $54-billion tie-up of U.S. health insurance giants Anthem Inc. and Cigna Corp. announced on July 24. Just days later, Israeli drug maker Teva Pharmaceutical Industries Ltd. said it would buy Allergan PLC's generic drug business for $40.5-billion.
The latest deal by Onex in the health care space builds on a previous investment. The Toronto-based private equity firm said one of its subsidiaries would acquire Hospital Physician Partners, a staffing services company that is the fourth-largest U.S. provider of clinicians working in emergency and hospital medicine. The private equity giant intends Hospital Physician Partners to build on its recent acquisition of Schumacher Group, which runs a similar business and closed on Tuesday. Together, the two companies will have more clinical expertise and "an expansive physician recruiting network across a diversified customer base," Onex said in a statement. Terms of the deals weren't disclosed, but the founders retain an interest in the business in both deals.
The red-hot U.S. market accounts for the majority of the health care deals seen so far this year, making the acquisitions by CPPIB and Onex no exception to the trend. But deals in Canada haven't yet seen the same boost, particularly outside the drug space. One exception was another joint venture formed by Health Care REIT to buy a seniors living facility owner and operator Regal Lifestyle Communities Inc. for about $374-million. The REIT's partner in that deal was retirement living company Revera Inc., which is a subsidiary of another pension player, the Public Sector Pension Investment Board.