October 6, 2023
In the healthcare sector, renowned for its resilience and appeal to astute investors, a distinctive shift is underway. Investment funds have assumed a prominent role in M&A activities, fostering R&D projects and catalysing innovation in medical devices. Last year saw a turbulent M&A market, with deals in the biopharma sector falling by 42%. The broader healthcare sector, too, experienced a substantial 62% reduction in the value of M&A operations. However, the current year marks a noteworthy recovery, with healthcare transactions now accounting for a substantial 14% of mergers and acquisitions across all sectors—an achievement not seen in the past two years. This resurgence underscores the sector’s inherent resilience in the face of challenges.
Here, Arthur Libier, Director at Translink Corporate Finance France and a member of Translink’s Healthcare Group, answers questions on the current state of healthcare M&A activity:
- What are the major factors fueling M&A activity in the healthcare sector in 2023?
We are witnessing a robust M&A activity in this sector, which is underpinned by a number of factors. These include:
- Strong growth opportunities in the life sciences sector: This is fuelled by constant innovation in cellular therapies, mRNA, IT, digital technologies and data.
- More to give: Healthcare industry players have important firepower accumulated over the COVID-19 period to inject into M&A operations.
- Market correction: Two years of market correction (2021-2022) has seen sector valuations decrease, fuelling investor appetite whilst still favouring buyers.
- Patents expiring: Many bestselling biopharma patents are set to expire imminently, which will force big pharma to build sound pipelines to add to their portfolios, in addition to therapeutic approaches to keep creating value.
- SMEs turn to M&A: Limited access to financing is ‘forcing’ SMEs to seek M&A options for growth and funding.
- Can you share any statistics on M&A growth in the sector this year? Has it slowed down?
The M&A market had a mixed year in 2022. In the first 11 months, investments in mergers and acquisitions fell by 53% compared to 2021 (12 months). A total of 117 transactions were concluded, down 27% from 2021. The value of M&A deals in the biopharma sector fell by 42%, with more emphasis placed on alliances than takeovers. On the medical technology side, there were staff shortages, cost increases and supply difficulties. In total, the value of M&A operations in the sector fell by 62%.
Despite the difficult and uncertain climate in Europe, 2023 has seen some recovery, with healthcare transactions accounting for 14% of mergers and acquisitions in all sectors combined, by the midterm. This equates to 174.6 billion dollars (157 billion euros) of all operations announced; the highest total in two years.
- What are the factors impeding deals from getting done? How can incumbents navigate these?
Several factors can hinder healthcare deals, including regulatory complexities, uncertainty around healthcare policies, and valuation misalignment. I’d propose key factors for the healthcare market in France include the following:
- If healthcare continues to be a key sector, then national indicators should be considered. In France, two key factors to be cognisant of include: (i) prices in France remain among the lowest in Europe for health-related products and (ii) the fear of the 2024 budget on the healthcare market and the announced reduction of the drug and consultation reimbursements, in a context of costs exposure for players in the sector.
- Interventions by lawmakers will have uncertain impacts on drug prices, market access, antitrust regulations, and foreign investments in France.
- Alliances, rather than M&A, could become a .
- Despite decreasing valuations, premiums remain high for the most sought-after assets.
The macroeconomic context and the rise in bank rates limit the capacity to finance transactions.
Players can navigate these challenges by engaging experienced corporate finance advisors who can be key partners in conducting thorough due diligence and staying vigilant on policy changes to mitigate risks.
- What are the benefits of strategic acquisitions for players right now?
The key benefits of acquisitions include:
- Access to innovation, and full pipeline integration for pharma and biotech industries. Acquisitions can ‘plug’ pipeline gaps (molecules in development for instance) or complete the portfolio of activities with other therapeutic or technological innovations by following a well-defined strategy.
- Acquisitions can occur following a failure during a phase of a clinical trial: As the company has already invested in research, it will then look elsewhere for a similar therapeutic solution or one that offers another way to treat the same illness. Immunology and oncology, which have seen major scientific breakthroughs recently, are two therapeutic areas that are currently attracting attention.
- Innovation no longer comes from big pharmas, which are increasingly looking for innovations externally, specifically from start-ups backed by venture capital players.
- M&A activity in the healthcare industry remains driven by the emergence of AI and digital health innovations. Digital health represents promising opportunities for modernising the healthcare sector, transforming professional practices and predicting the medicine of tomorrow.
- Finally, manufacturers are looking for opportunities, in part because the patents of many bestselling drugs are due to expire in the second half of the decade.
- Has M&A activity in the supplement market slowed since the pandemic’s end?
The supplement distribution sector has seen significant concentration and dynamism, with the launch of new products, new brands and the development of new distribution methods over the past year. Driven, in addition, by strong growth, operations in this subsector are characterised by high valuation multiples during transactions. There has been no ‘slowdown’ in this subsector to date.
- Have we seen any major healthcare tech advancements in 2023? How is this impacting M&A?
Yes, major advancements in the e-health subsector are enabling data management (shared medical files, secure health messaging). This strengthens and simplifies access to care (better knowledge of the offer, improvement of accessibility). The development of new services empowering the patient (through a “quantified self” or the measurement of personal health data) are also made possible thanks to e-health.
Start-ups are also driving advancements, which is boosting M&A activity as larger groups seek to acquire technologies.
- How is inflation impacting M&A in the sector?
Inflation deeply impacts access to financing (rising interest rates); it also creates a fear of recession. This limits the appetite of companies for M&A deals/ external growth and it also impacts valuations. This may lead to more cautious deal-making strategies.
Translink has a leading team of cross-border experts in the healthcare sector, with deep industry knowledge and a wealth of shared experience. The team of M&A advisors help identify opportunities in a challenging global climate and steward a deal from start to completion. Translink Corporate Finance France has a reputation for getting the deal done.