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Still fighting fit and attracting new investors: M&A prospects in the Health Industries

Luca Borrelli Director, Pharma and Life Sciences, PwC Switzerland 31 Aug 2021

Many investors see Health Industries as a stable, attractive option with very good prospects across the economic cycle. This is why Pharma and Life Sciences and Healthcare Services have continued to attract interest even as the pandemic eases in some regions and general economic optimism grows. Health Industries is another sector whose development is currently dominated by accelerated digitalisation in the wake of the pandemic, with everything from patient care delivery, practice management and the development of advanced precision therapeutics affected by the ongoing adoption of digital technologies. Health Industry valuations are high, and there have been many deals involving complex structures. We expect M&A activity and valuations to remain at high levels for the next 12 to 18 months. These are some of the global conclusions of PwC’s most recent global M&A insights. What about developments and prospects for the Health Industries in Switzerland?

Industry-specific drivers

As described in our last blog, there are two main drivers of value in Pharma and Life Sciences: innovation in treatments and enhancing the customer / patient experience and ecosystem. Recent developments in cell and gene therapies, mRNA and digital analytics are encouraging industry leaders to refocus on treatment innovation. This means that large strategic players will move away from the conglomerate model, continuing to dispose of non-core businesses in favour of building speciality platforms. This will result in accelerated deal activity from the divestment of consumer-focused businesses, plus the acquisition of speciality pharmaceutical developers, contract development and manufacturing, and contract research organisations.

Business model disruption

The recent trend continues, with digitalisation ongoing in both the Pharma and Life Sciences (PLS) and Healthcare Services (HCS) segments. With digital analytics technology, smart health devices, healthcare practice-management software and consumer-centric delivery models increasingly intersecting, existing players are looking at their business models in whole new ways, resulting in increased cross-sector deal activity. This is coupled with a growing tendency for PLS and HCS companies to acquire or partner with tech companies to be able to harness digital solutions to revamp their business models and improve the way they interact with payers, providers and consumers.

Geopolitical developments

Smart operators continue to keep an eye on China. While in many parts of the world the preoccupation has been social inequality and healthcare policy debates, coupled with political uncertainty on a national level (including the prospect of elections in Japan, France and Germany), China has ratified a new regional trade agreement, has published an economic plan for 2021-25, and has pushed further investment in local leaders in the PLS segment. Look out for more Chinese cross-border M&A activity, especially in biotech.

M&A trends in the first half of 2021

As the graph shows, despite a recent dip in deal value, Health Industry M&A activity in Europe, the Middle East and Africa is still running high. This activity is primarily powered by Healthcare Services, diagnostics and medical devices companies, which are benefiting from pent-up demand as elective medical procedures put on hold during the pandemic are resumed.

EMEA Health Industries deal volumes and values

Bar chart showing M&A volumes and values globally for Health Industries. Deal activity remained resilient in the first half of 2020, then both deal volumes and values increased strongly. Deal values were also boosted by significant megadeal activity.

Source: Refinitiv, Dealogic and PwC analysis

What about M&A in the Swiss health industry?

Swiss M&A activity mirrors the global trend. In pharma and life sciences we have seen a further rise in the deals count and M&A activity remains hot. It was again driven by large pharma companies looking to acquire developmental assets and innovative technology to expand and complement their specialty portfolio. The trend of divesting non-core assets continued too, especially with Lonza disposing of its Speciality Ingredients Business, with the clear aim of focusing on the group’s business in Health Care. One of the biggest talking points over the last year was the rise of SPACs; we saw Roivant using this route to list on the Nasdaq and access further funding for discovery and development programmes. It will be interesting to see, whether SPACs will remain a hot topic and become a sustainable route for companies to list publicly or raise funds for acquisitions. After dominating the conversation early in the year, we have seen activity in SPACs already dying down lately.

While Covid-19 only caused a minor dip in pharma and biotech M&A, medtech was more heavily impacted. The temporary suspension of elective surgery and treatments in many countries, including Switzerland, clouded the outlook and increased uncertainty. In 2021 these headwinds have subsided and medtech is back on the M&A path. Especially medical devices and equipment companies are attractive acquisition targets as healthcare systems work through the considerable backlog of procedures delayed during the pandemic.

Pharma and Life Sciences: Swiss deals

Pharma & life sciences: Swiss deals

Pharma and Life Sciences also saw the return of large deals in 2021 – with the top five Swiss deals all above USD 1 billion.

Top five Swiss deals

In Health Services, M&A activity remained up. The focus of acquirers was laboratory business, where we saw a surge in deals. In contrast, activity relating to care providers was unusually quiet. We expect the interest in laboratory and diagnostic businesses to continue, but activity in personal care will likely be up again.

Private equity transaction continued to increase in 2021. While the market is attractive for exits, we see that financial sponsors are again focusing on the Health Industry and are looking for targets. Attractive targets are contested, and the valuations are high. Nevertheless, the industry’s general resilience and value creation and consolidation potential along the value chain still provide attractive upside for financial sponsors.

Swiss companies have remained attractive targets, but Swiss buyers were equally active. In- and outbound M&A were in balance, and the health sector remains a global industry, with companies looking to grow through international expansion.

Buyer and Target Geography

To summarise: still fighting fit and evolving rapidly

The pandemic continues to influence the dynamics of the industry. Growing health consciousness spells continued growth in consumer products that promise to improve overall health and wellbeing, and new entrants have the savvy to potentially revolutionise the way consumer healthcare is marketed. There’s also plenty of business model disruption, with the desire of many companies – both existing players and new entrants – to create a strong ecosystem across the healthcare value chain set to increase cross-sector deals. Upcoming elections in some major PLS markets could hold back some cross-border M&A activity, but geopolitical uncertainty could equally boost M&A in the next six months. Healthcare Services consolidation and digitalisation are also factors that could drive activity. And the tens of billions of revenue the industry is set to earn on Covid vaccines could help disrupt the balance of market power across the Pharma and Life Sciences industries.

As we foresaw in January’s edition of the blog, the ongoing impact of the pandemic has varied among different Health Industries businesses. Those able to mitigate the effects of the pandemic with excess cash on their balance sheets are likely to have a significant impact on the M&A market for some years to come, while others might try to attract strong acquirers in fear of a fourth Covid wave.

“Health Industry M&A is strong, and we see no sign that the activity will subside. The prevalent industry trends fuel M&A activity and provide significant growth and value creation opportunities for both corporate and private equity transactions. M&A will remain hot and further drive high valuations.”

Luca Borrelli, Director, Pharma and Life Sciences

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Luca Borrelli

Luca Borrelli

Director, Pharma and Life Sciences, PwC Switzerland

Tel: +41 58 792 22 78