Mergermarket’s Sector Trend Report on pharma, medical and biotech sectors reveal $166 billion that changed hands across 658 deals during the first half of 2017 accounted for an 11.1 per cent market share of global M&A
Pharma, Medical & Biotech (PMB) in Q2 (290 deals, $ 89.9 billion) saw its strongest quarterly value since Q3 2015 (US$ 101.7 billion), partially as a result of Becton, Dickinson and Company’s $ 23.6 billion deal to buy C.R. Bard in April. The $ 166 billion that changed hands across 658 deals during the first half of 2017 accounted for an 11.1 per cent market share of global M&A. Yet, despite it capturing a significant market share, the sector was still 4 per cent lower in value with 107 fewer deals compared to H1 2016 (765 deals, $ 172.9 billion). Combined, the Johnson & Johnson and Becton deals accounted for 32.1 per cent of global PMB value and as a consequence the average deal size increased to $ 512 million, the second highest value on Mergermarket record (since 2001). Despite a slowdown in activity, the US contributed a substantial portion to global PMB dealmaking. The country was responsible for 244 deals worth a total $ 98.8 billion – a 51.5 per cent increase by value compared to H2 2016 (261 deals, $ 65.2 billion), moving back towards the levels seen in the first half of 2016 (296 deals, $116.3 billion). The country attracted four $ 5 billion-plus deals worth a combined $ 47.6 billion, versus five big ticket deals at $ 84.6 billion announced in H1 2016. Uncertainty around US corporate tax reform and President Trump’s pledge to cut high consumer drug prices were instrumental in slowing activity. Meanwhile, Europe registered 221 deals worth $ 51.6 billion in H1 2017, representing a 40 per cent increase in value with 37 fewer deals compared to H1 2016 (258 deals, $36.8 billion) and recording its highest average deal size on Mergermarket record of $ 622 million. Despite the region’s PMB market share dropping to 7 per cent, Asia-Pacific’s (excl. Japan) dealmaking saw the second highest H1 value and the third highest H1 deal count on record. The region registered 117 deals at $12 billion and 7.8 per cent up by value compared to H1 2016 (129 deals, $ 11.1 billion). PE buyouts in the region achieved a record H1 value with 18 deals announced at $ 3.3 billion. Across the sub-sectors, Medical was most active PMB sub-sector in Asia-Pacific with 65 transactions recorded at $ 5.3 billion and up by 7.2 per cent in value compared to H1 2016 ($ 5 billion, 65 deals). Globally, the Biotechnology sub-sector saw 81 deals registered at $ 52.4 billion, a value increase of more than eight times compared to H1 2016 ($ 6.3 billion, 87 deals) and a record H1 value on Mergermarket. Values for H1 have already exceeded full year totals for each period since 2009 ($ 54.8 billion). However, the most targeted sub-sector by deal count remained Medical with 437 deals announced at $ 76.8 billion and down by 7 per cent in value from H1 2016 (489 deals, $ 82.6 billion).
Private equity firms’ interest in the pharma and medical assets remains strong with buyout activity accounting for 128 deals worth $ 33.6 billion, the second highest H1 both by deal value and count on record. Exits were also high with 111 deals announced at $ 40.2 billion, the third highest H1 both by value and count. Deal value was mainly spurred by Abu Dhabi Investment Authority and GIC’s $ 9.1 billion takeover of US-based contract research organisation (CRO) Pharmaceutical Product Development (PPD) in a secondary buyout from Carlyle and Hellman and Friedman, and Pamplona’s acquisition of US-based PAREXEL for $ 4.9 billion as a result of consolidation across the healthcare services sector. The future remains positive for PMB due to affordable financing and companies seeking next-generation technologies and businesses developing health services with stable revenue generation. Dealmaking is expected to increase in the medical services sector due to healthcare systems implementing cost-cutting measures, so that outsourcing becomes a cheaper and more efficient way to assist patients. Private equity firms will also be active in behavioral health transactions due to increasing demand, insurance coverage, good cash flows and legislative reforms.
Drivers
Uncertainty regarding changes to the Affordable Care Act Heat chart based on potential companies for sale has been somewhat of a drag on M&A activity, noted Pfrang of Deloitte & Touche. Deals that were not getting done are now more likely to move forward, once new legislation of any kind is approved. It is not that the market thinks the proposed legislation in its exact form will be approved, but it gives the market an idea of the direction that the Trump administration is heading. Dealmaking in 2017 in the US will be strong in alternative sites of care, like home health. Anything with the potential to be relevant in a different care delivery model, and to help with lowering costs, will also be attractive, he added. Healthcare IT and data-driven businesses would fall into this bucket. Pfrang cautioned, however, that healthcare IT is a crowded space. Valuations are high, and not every company is going to survive. “There is a lot of unproven technology,” he said. European healthcare continues to drive investment and M&A in technologies that increase patient access to healthcare, promote better health outcomes and reduce costs. Seventure Partners for example invested in financing rounds of Machtfit and Push Doctor, both companies specialising in connected health, given the growth potential in this innovative area. As healthcare systems continue to be squeezed by pricing pressures and local reforms, connected health or mHealth businesses fill the funding gap by enabling remote access to physicians, increase patient compliance, and provide analytics and technologies that promote tailored patient solutions. While pharma will remain the standard of care, an increase in chronic and rare diseases will call for consolidation among digital health providers and advanced diagnostics. Such companies are able to provide technologies and analytic tools that preempt and manage diseases with better healthcare outcomes.
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