Health Care ETFs Can Still Strengthen on Increased M&A Activity

While the health industry has underperformed so far this year, health care stocks and sector-related exchange traded funds can gain momentum on increased merger and acquisition activity.

About $144 billion in deals for biotechnology, health care and pharmaceutical companies have been announced this year, with Abbott Laboratories (NYSE: ABT) agreeing to acquire St Jude Medical Inc. (NYSE: STJ) for $25 billion and AbbVie Inc. (NYSE: ABBV) buying Stemcentrx for $5.8 billion, Bloomberg reports.

Premiums on health care deals are also holding, with almost 30% of deals this year commanding premiums of 40% to 50%, mirroring premiums paid this time last year.

The rash of new deals is already up 27% on a dollar basis from a year ago when the industry was on its way to over a 12-year record in deal making. Businesses are expanding their product lines through acquisitions as they face increased competition and look to new merchandise to raise sales.

“We are likely see more M&A in health care this year as companies streamline their portfolios and seek to build up those areas of higher future growth,” Nigel Jones, co-head of health care at Linklaters law firm, told Bloomberg.