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Anand Iyer, president and CEO of WellDoc Inc., which received a $20 million investment from Merck Global Health Innovation Fund. (Photo: Eric Stocklin)

Tech, health care drive mergers

While Maryland’s merger activity stayed fairly constant in the first quarter, technology and health care ruled, as local businesses in those sectors both attracted investors and made acquisitions.

Maryland saw 53 mergers and acquisitions in the first quarter of 2014, according to data compiled exclusively for The Daily Record by Bloomberg Financial.

Of those deals, 16 involved technology companies, from educational software to cyber security services. A total of 14 deals involved medicine or health care businesses.

“It’s health IT, it’s big data analytics, it’s cybersecurity, it’s cloud data,” said Larry Davis, partner and founder of Aronson Capital Partners, a Rockville-based merger and acquisition adviser.

These areas are growing, he said, so buyers are interested.

Maryland’s merger and acquisition activity dropped slightly from the fourth quarter of 2013, but deals actually increased among technology and health care companies.

It’s only logical, said Davis, as Maryland has a strong market in these sectors. And that’s amplified by a nearby, relatively loyal customer — the federal government.

“There’s a lot of federal dollars associated with technology and health care in this area,” said Davis.

Even though the federal budget shrank, he said, having a set budget is a step in the right direction, and the feds haven’t cut back on high-priority items like affordable health care and securing cyber data.

Charles McCusker, managing partner of Patriot Capital in Baltimore, agreed.

“Maryland has a health care and technology focus, and government contracting,” he said. But “even tech companies and health care companies are probably driven by a government contract they’re working on.”

Three deals in the first quarter took place at the intersection of medicine and information technology, such as Sterling Partners’ investment in Portsmouth, N.H.-based Q-Centrix LLC, which provides technology for tracking health care outcomes.

“What we’re seeing now is with the Affordable Care Act dumping a lot more people into the system … how do you address all those patients in an effective way?” said Glenn Molin, a senior business adviser for Harvest Business Advisors in Columbia, who has a medical background.

The answer to that question, he said, is partly the consolidation of health care providers. But it also drives investments in new treatment possibilities and technology that make medical practice easier.

For example, an app developed by WellDoc Inc. allows diabetes patients to treat their disease with a mobile devise, so doctors can treat these patients more efficiently. WellDoc received a $20 million investment from Merck Global Health Innovation Fund LLC in January — not a consolidation, but an indicator of interest in efficiencies.

“Where we are as a nation is we have to reduce the cost of health care,” said Davis. “All these things … electronic patient records, mobile health apps, they’re all related to reducing costs.”

In Maryland particularly, these types of innovations may have a better soil in which to grow, said Joel Morse, a financial economist at the University of Baltimore.

“In the medical area, it’s clear that with (Johns) Hopkins and with the [National Institutes of Health] in the neighborhood, we are poised to be generating all sorts of intellectual ferment in these exciting areas,” he said. So despite a challenging economic and state tax environment, “the intellectual ferment is going on.”

Neither destination, nor repellent

That ferment is alive in Maryland’s tech sector as well, said Morse, citing the draw of Baltimore for budding entrepreneurs.

“We are a city with a creative class and it’s attractive with all the theatre and art,” he said. “It’s a culture that brings in smart and energetic young people.”

That atmosphere may allow Maryland’s economy to be “reborn,” he said, from the industrial one of years ago to one rich in intellectual capital. That’s somewhat stifled by Maryland’s business-unfriendly tax environment, he said, but there’s still some promise.

“I think we’re not in electronic technology a destination,” he said. “But it is exciting that we’re not seeing an exodus, that we’re seeing people stay here to start businesses.”

Maryland’s first-quarter tech-related deals were diverse, involving both Maryland buyers and Maryland targets. They included consumer-oriented companies selling audiobooks for mobile devices, bitcoin or gaming software. But they also included a number of deals in cloud computing and cybersecurity.

“That’s an area where there’s just tremendous investment,” said Davis. “There’s a threat, and it’s constantly evolving.”

The necessity for up-to-date security makes technology lucrative.

“The kind of acquisitions that we’re seeing here and the types of companies we’re seeing founded here will go on, even if the economy is relatively weak,” said Morse. “That’s a good thing for Maryland.”

The only downside, he said, is that these fields require highly educated workers and do little for unemployed, low-skilled workers.

But the companies that expand in Maryland will find an ample supply of the employees they need, said McCusker.

“High taxes, high cost of living, that’s balanced by a great workforce,” he said. “I think when you see investment dollars come into the state, you will see increases in jobs.”

And he does expect those investment dollars to increase this year. Many transactional advisers expected 2014 to bring an increase in activity, he said, and the most recent quarter didn’t show that because the first quarter tends to be slower than others.

“Our colleagues and people who are in the industry associations that I’m in, they’re all reporting that the second quarter is busier than the first quarter,” said McCusker. “I think you’ll see a pretty good tick up for the rest of the year.”

DEALS OF NOTE 

Waterloo, Canada-based Open Text, which provides information management software to other businesses, acquired Gaithersburg-based GXS for $1.16 billion, making for the largest deal of the quarter. GXS specializes in business-to-business cloud integration.

Pennsylvania-based F.N.B. acquired BCSB for $76.8 million, as part of a larger Maryland expansion strategy, which included the acquisition of Annapolis Bancorp in 2012, and of OBA Financial, announced this month.

Emergent, a Rockville-based biodefense company, purchased Canadian drug company Cangene for $222 million, as part of a strategy to diversify revenue mix and add commercial product sales to the business.

Source: Bloomberg