Global M&A Trends in Health Industries: 2021 Mid-year Update
M&A activity in health industries remains high and continues to attract new investors.
Pharmaceuticals and life sciences (PLS) and healthcare services (HCS) continued to attract high levels of investor interest in the first half of 2021, even as the COVID-19 pandemic has begun to ease in some regions. Despite growing economic optimism in developed economies, many investors continue to see the sector in terms of its historical position as an attractive sector, as it has proven to be structurally stable and offers very good prospects across the economic cycle. M&A deal activity and valuations are running high, and we expect this trend to continue for the next 12 to 18 months.
The pandemic has accelerated the pace of digitisation across many aspects of our lives, and healthcare is no exception. The ongoing adoption of digital technologies is affecting everything from patient-care delivery to practice management to the development of advanced precision therapeutics. In PLS, this is causing large pharma to refocus on innovation-led value creation and away from consumer-oriented businesses. For HCS, the whole operating model is shifting to focus more on delivering consumer-driven health and well-being services.
Along with high valuations, the sector has seen a multitude of deals involving complex deal structures, from special purpose acquisition companies (SPACs) in the US to public-to-private transactions. As anticipated in our January edition, the prolonged impact of the pandemic has varied among different health industries businesses. Those that mitigate the effects of the pandemic with significant excess cash on their balance sheets are likely to have a significant impact on the M&A market for some years to come.
“The pandemic has accentuated vulnerabilities in personal health and well-being. We expect to see more transactions driven by cash-rich tech companies as well as deals involving large food companies.”
M&A hotspots
We expect the following areas to be M&A activity hotspots during the next six to 12 months:
Pharmaceuticals and life sciences
- Traditional big pharma players have ample dry powder for M&A—and they’re likely to continue to be interested in acquiring biotech companies at the frontier of science, such as cell and gene therapy or next generation therapeutics. Due to a surge in valuations for some biotech companies, big pharma is increasingly looking at more creative approaches to deal-structuring and partnerships.
- Contract development and manufacturing organisations (CDMOs) can command higher valuations with a differentiated offering or specialised capability such as in mRNA technology or cell and gene therapy.
- Apart from vaccination, rapid and increasingly sophisticated point-of-care diagnostics will play a central role in managing the pandemic. This is likely to attract further investment and M&A as innovative technologies emerge from disruptors.
- As the pandemic is likely to remain front of mind in many countries, the market for consumer health products that can improve overall health and well-being (e.g., vitamins, minerals and supplements) should continue to grow and is likely to make this sector increasingly attractive for investors.
Healthcare services
- Specialty care and elderly care continue to attract investor interest. Automation and implementation of digital solutions continue to present value creation opportunities across the care journey.
- Cross-border transactions will remain at elevated levels as private equity (PE) groups and strategic players alike continue to build regional growth platforms and/or enter new markets.
- Private healthcare providers and medical devices companies that are focused on elective surgery may become more attractive acquisition targets as healthcare systems work through the considerable backlog of procedures delayed during the pandemic. Businesses focused on cosmetic surgery and discretionary medical procedures, such as laser eye surgery, should also see additional demand due to levels of household savings and pent-up consumer demand as countries emerge from the pandemic.
M&A trends in the first half of 2021
Global Health Industries Deal Volumes and Values
Source: Refinitiv, Dealogic and PwC analysis
The significant uptick in M&A deal flow in the sector that began in the third quarter of 2020 continued into the first half of 2021, with deal activity remaining at elevated levels across all regions both in terms of deal volume and deal value. This is driven by particularly strong interest from PE funds in the health industries sector, which collectively accounted for approximately 47% of deal volume, a marked increase compared with a long-term average of around 35%.
Eleven megadeals were announced in the first half of 2021 with a total deal value of approximately US$128bn: a consortium of PE funds is to acquire a majority stake in Medline (US$34bn); Thermo Fisher announced that it will acquire PPD (US$17.4bn); Ginkgo Bioworks announced plans to go public in a SPAC deal (US$16.9bn) ; ICON announced plans to acquire PRA Health Sciences (US$12bn); Danaher announced plans to acquire Aldevron (US$9.6bn); Hapvida announced a takeover of Intermedica (US$9.6bn); Roivant announced plans to go public in a SPAC deal (US$7.3bn); Jazz Pharmaceuticals acquired GW Pharmaceuticals (US$6.8bn); Nestlé announced it plans to acquire core brands from The Bountiful Company (US$5.8bn); Humana announced it has agreed to purchase the remaining share of Kindred at Home (US$5.7bn); LumiraDx announced plans to go public in a SPAC deal (US$5bn).
Key M&A trends for each region include:
- Asia-Pacific – deal activity continues to be driven by PLS, as R&D and innovation from the region lead to increased licensing deals, partnerships and M&A.
- EMEA – an elevated level of M&A activity is being driven by healthcare services, diagnostics, and medical devices companies as the region recovers from the setback and subsequent backlog of elective medical procedures due to the pandemic.
- Americas – deal flow and valuations have benefitted from the buoyant capital markets and the strong interest in the healthcare value chain from PE funds and SPACs.
Key themes driving M&A activity
Industry-specific drivers
The PLS industry has two main drivers of value: innovation in treatments and enhancing the customer experience and ecosystem. Recent scientific and technological developments in cell and gene therapies, mRNA, and digital analytics capabilities are leading industry players to refocus primarily on treatment innovation.
In other words, the large strategic players will continue shedding non-core business units, focusing instead on building specialty platforms and moving away from being pharma conglomerates. As a result, we expect to see accelerating deal activity from the divestment of consumer-focused businesses (such as over-the-counter products) and the acquisition of specialty pharma developers, contract development and manufacturing, and contract research organisations. We also expect that non-PLS players such as fast-moving consumer goods (FMCG) companies are well-positioned to unlock growth and value from these non-core business units with their direct-to-consumer and digital marketing expertise.
Business model disruption
The ongoing digitisation and digitalisation of PLS and HCS business models through the intersection of digital analytics technology, smart health devices, healthcare practice-management software and consumer-centric delivery models (including developing direct-to-customer digital therapeutics offerings) is changing how existing players are looking at their business models and driving cross-sector deals. Companies’ focus on optimising their portfolio of products and services is accelerating deal flow in the industry.
Players from across the PLS and HCS spectrum are leveraging digital solutions to modernise their business models, streamlining and enhancing how they interact with payers, providers and consumers. As a result, PLS and HCS firms are increasingly acquiring or partnering with tech companies.
Geopolitical developments
While much of the world has been preoccupied with social inequalities and healthcare policies debates in the wake of the pandemic as well as national political uncertainties (including the upcoming elections in Japan, France and Germany), China has ratified a new regional free trade agreement, the Regional Comprehensive Economic Partnership (RCEP). China has also published an economic plan for 2021–2025 and pushed further investment in its regional PLS industry champions (BioNTech’s first vaccine partnership, for example, was with the Shanghai-based multinational conglomerate Fosun). We expect to see additional Chinese cross-border M&A activity, particularly in biotech, over the next six to 12 months.
Health Industries M&A outlook
- Consumerisation of healthcare
- Business model disruption
- Regulatory uncertainty and geopolitical tension
- Healthcare services consolidation and digitalisation
- Post-crisis, post-vaccine: Winners and losers
Consumerisation of healthcare
As the pandemic lingers in many countries, the market for consumer health products that can improve overall health and well-being—such as vitamins, minerals and supplements—should continue to grow. Armed with direct-to-consumer and digital marketing expertise, new entrants like FMCG companies have the potential to unleash growth in consumer healthcare brands by rewriting the sector’s marketing playbook.
Business model disruption
We expect continued growth in cross-sector deals as existing players and new entrants alike jostle for ecosystem strength throughout the healthcare value chain. Companies will need to remain agile and challenge themselves to reinvent business models and optimise corporate portfolios. The ability to identify, negotiate and realise value from increasingly complex partnerships and alternative collaboration models will be an important competitive advantage.
Regulatory uncertainty and geopolitical tension
Geopolitical relations between China and certain other countries continue to create some uncertainties and may dampen some cross-border M&A. However, uncertainty surrounding potential political regime changes elsewhere, either from ordinary elections or in response to the pandemic, may result in additional M&A activity over the next six months. Those businesses that have been considering exits from certain regions may decide to expedite those plans in anticipation of governments making unfavourable tax, regulatory or fiscal changes.
Healthcare services consolidation and digitalisation
Across the healthcare deals landscape, we see continued consolidation of private clinics and specialist care providers, which remain fragmented across different markets. Operators will need to embrace digitisation and accelerate the adoption of digitalised practice management and digital solutions to put patients at the centre of the patient care journey in order to unlock further value.
Post-crisis, post-vaccine: Winners and losers
We had previously anticipated an influx of cash for the industry from COVID vaccines which are collectively poised to generate tens of billions of revenue. This could be a powerful catalyst for a disruption to the balance of market power across the pharma and life sciences landscape. M&A will be a priority for capital allocation among successful vaccine developers in the coming years. Apart from vaccines, rapid and increasingly sophisticated point of care diagnostics will likely play a central role in managing the pandemic going forward.
About the data
We have based our commentary on M&A trends on data provided by industry-recognised sources. Specifically, values and volumes referenced in this publication are based on officially announced transactions, excluding rumoured and withdrawn transactions, as provided by Refinitiv as of 30 June 2021 and as accessed on 5 July 2021. This has been supplemented by additional information from Dealogic and our independent research. This document includes data derived from data provided under license by Dealogic. Dealogic retains and reserves all rights in such licensed data. Certain adjustments have been made to the source information to align with PwC’s industry mapping. We define megadeals as transactions with a deal value greater than US$5 billion.
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