- Cross-border M&A in the healthcare sector hit a high of $259.7bn in 2014 and stands at $159.7bn so far in 2015, on the back of 334 deals. Trends suggest that the level of activity this year will be similar to last year and well-ahead of all other post-crisis years
- The US is by far the most popular target, accounting for 59% of all dealmaking by value so far in 2015
- The UK and Ireland are the top bidders on a value basis, together accounting for 42% of all activity
- China and India are the only two emerging markets in the top ten most targeted countries. Neither appear in the most acquisitive top ten
Healthy returns for cross-border M&A
Cross-border healthcare* M&A is in peak fitness as we move into Q4 2015, with activity for the year as a whole looking likely to match that of 2014, which broke all post-crisis records for healthcare M&A. In general, consolidation and core competencies are driving deals; however, according to Jane Hobson, Chair of Baker McKenzie's Global Healthcare Industry Group, each sector within the field has its own story.
“With pharmaceuticals, the big companies are still seeking to replace drugs that have gone off-patent, so they are re-trenching back to core businesses (and we have seen a number of spin-offs and transactions as a result), whilst exciting innovation in key therapy areas such as oncology are yet to come online,” Hobson says.
Another trend which has seen a great deal of activity is in the generics space. “They have a different business model to innovators – low margins but high volume – and they are looking to create critical mass,” she says. “We have seen, for example, a number of Indian generics companies looking for targets in the US, and again that is driving more activity.”
As far as the medical device industry is concerned, fragmentation, new directives and increased regulation mean that, once again, there is a drive for consolidation. “The small players are struggling to keep up with the increasing regulation [particularly in Europe], and companies are likely to join forces to increase scale, in order to be able to respond to these new regulatory requirements,” Hobson adds.
Unlike sectors such as technology and industrials, there is a definite gap between developed and emerging economies when it comes to deals in the healthcare sector. The US is the top target and bidder in volume. “There is so much activity and innovation there and it is such a large market that it is hard to see how it wouldn’t be the biggest target,” Hobson says.
Meanwhile, no BRIC countries appear among the top ten acquirers, although this may not be the case for long, particularly in the case of China. “China is in the process of wanting to build its own innovative industry and the way to do that is to bring back technology into its own country for its market," Hobson says. So the Chinese pharmaceutical companies will look very closely at US and European technology.
Tracy Wut, Co-head of Baker McKenzie’s Healthcare Industry Group in China and Hong Kong, who works closely with healthcare companies in China, also sees other trends emerging. “Chinese corporates are interested in the technology but also manufacturing," Wut says."In general, Chinese players are still more interested in marketed products that they will be able to sell using their own networks in China."
Despite the absence of the emerging market powerhouses, cross-border M&A in the healthcare industry shows little sign of slowing.
* Pharmaceutical, medical and biotech sectors
Eye on the future: three key trends to watch
- Digital in the spotlight “In digital health, there are a lot of smaller players, and they will eventually have to consolidate to be attractive, to deal with regulation and to have the ability to scale up,” Hobson says. “And the pharma industry is interested in big data. Players that can host, manage and provide that data in a way that’s compliant with data privacy will also become very attractive to the industry. We also cannot ignore the non-healthcare players who are entering this space with innovative technology and seeking transactions.”
- Eyes on the UK and Ireland There has been a surge in cross-border M&A from the UK and Ireland and this looks set to continue. “There’s just more funding available which has enabled the biotech industry to gain more momentum,” Hobson says. “In addition, the UK has a difficult pricing environment for pharmaceuticals, so companies may look at ways to counterbalance these by seeking growth in overseas markets.”
- Clinical thinking In emerging markets and in China, in particular, hospital and clinic deals (both M&A and greenfield projects) will continue to be areas that generate a lot of interest, both domestic and foreign. “This trend will continue, particularly after the healthcare reforms since 2009, and given the need to upgrade the hospitals and services, and further relaxation in foreign equity restriction in this area,” Wut says.