As 2014 comes to a close, the volume of mergers and acquisitions in the laboratory sector during the calendar year is hewing close to what transacted in 2013, although there is more movement in the once vapor-locked pathology niche.According to data from the Florida-based Crosstree Capital Partners, 26 deals have been consummated so far this year, compared to 29 in 2013. One of those 26 deals involved a Canadian laboratory, bringing the U.S. total down to 25.However, another source in the lab M&A realm has indicated as many as three other deals are in the works and could close before the end of the year. That’s in fairly stark contrast to 2013, when the deal-making essentially ended in the week before Thanksgiving. “I think it has been an interesting year. There has been a lot of activity on the clinical side, particularly toxicology and direct testing labs, both [being traded] by private equity firms and strategic buyers and what looks to be some consolidation,” said David Cox, a partner in the Nashville law firm of h3gm who specializes in mergers and acquisitions. Cox added that he has at least five lab deals currently on his plate. There have been two deals closed in December alone—LabCorp’s acquisition of Bode Technology (see page 1) and Eurofins Scientific’s acquisition of Boston Heart Diagnostics Corp. for $200 million, which was announced on Dec. 8. The deal includes $140 million up front and a projected $60 million in future earn-out payouts to its owner, Bain Capital Ventures, based on the company meeting certain milestones. “We couldn’t be more excited to become part of the Eurofins family,” said Boston Heart Chief Executive Officer Susan Hertzberg. “Boston Heart will continue to provide our breakthrough testing and services to clinicians and patients under the Boston Heart name and in the same manner our customers have come to expect.” The company will operate as a wholly owned subsidiary, and its entire workforce of about 350 employees will be retained. The deal by the Luxembourg-based Eurofins is the second in 2014 (it acquired Viracor-IBT in May for $255 million). The company was primarily focused on food, consumer product, and environmental testing, but it has been diversifying as of late. Jeff Ellis, a managing director at Crosstree, said that Eurofins has been particularly active in the U.S. market, although it was not an indication that other foreign laboratories would swoop in on American properties. “Eurofins is very much a global business, and what is unique about them is that they didn’t have presence in clinical diagnostics,” which was the primary impetus behind the two deals. “A lot of their general philosophy overall is that they acquire in a number of different industries, keep labs intact, and continue to build the business further with some financial and parental support.” Ellis added that Eurofins had “some fairly robust revenue goals” and that the company needed to be active in mergers and acquisitions in order to meet them. LabCorp vs. Quest If there has been one dramatic change in the composition of deal-making, it is the involvement of the two major publicly traded national laboratories. In 2013, seven of the 29 deals—nearly a quarter of the total—involved Quest Diagnostics or LabCorp acquiring a lab. In 2014, those two were involved in six of the transactions—but five of them were consummated by LabCorp. Quest’s only deal took place in January, when it acquired Solstas Lab Partners Group LLC for $563 million. Quest did also acquire Summit Health in April for an undisclosed sum, but that company focuses on wellness rather than laboratory services. Sector observers suggest the dearth of deals on Quest’s side this year illustrates a divergence with LabCorp. Quest, which announced a quarterly cash dividend of 33 cents a share earlier this month, may be more focused on cutting costs and building share price, while LabCorp is moving more aggressively in diversifying its portfolio. “I would expect Quest and LabCorp will compete aggressively, but LabCorp is a much more diversified company at this point,” Ellis said. Pathology Heats Up Meanwhile, there has been some fairly robust activity in the realm of pathology, which has been beaten up by a steady drumbeat of reimbursement cuts. The most devastating was the 52 percent cut in the technical component of Current Procedural Terminology code 88305 that was implemented last year. It led to overall reimbursement for 88305 dropping by a third, damaging the values of pathology practices and labs. “Pathology labs had really been on life support on a while, but I think you are starting to see some pickup in that space as well,” said Cox, who added that pathology lab owners are becoming more accepting of the fiscal realities of their niche and are making peace with exiting the space. According to the Crosstree list, there were eight transactions during the year involving the acquisition of pathology labs and practices. The only transaction where a dollar figure was disclosed was Path Logic’s acquisition by NeoGenomics for $6 million, among the smallest deals where the terms were announced. The reimbursement cuts have indeed had an impact on sales prices. According to Cox, deals are being predicated on one to 1.5 times revenue, whereas before the flood of reimbursement cuts, sales were more likely to be based on two to 2.5 times revenue. Meanwhile, 2015 is expected to have about the same number of deals as in the prior two years. “I would expect M&A to probably maintain in 2015. I don’t expect to see a flood of deals,” Ellis said. Takeaway: The 2014 M&A picture in the laboratory sector is all but unchanged in terms of volume, but the easing up in the pathology market is making deals more diverse.