sed -n '/^1/ {1h; 1! {x; s/\n//g; p; }}; /^2/ {s/^/|/; H; }; $ {x; s/\n//g; p; } ' file

/^1/

1h;

1!

{x; s/\n//g; p; }
/^2/

{s/^/|/; H; };

{x; s/\n//g; p;

(h)function copies the contents of the pattern space into a holding area 
(g) function copies the contents of the holding area into the pattern space, 
destroying the previous contents of the pattern space
(H) function appends the contents of the pattern space to the contents of the holding area.
(x)function interchanges the contents of the pattern space and the holding area.

awk '{printf("%s%s",$0~/^1/ && FNR>1?ORS:"",$0)} END{print ""}'

$0~

represents your home folder