M&A activity in health industries vigorous, with no signs of slowing down in 2022

Luca Borrelli Partner, Pharma and Life Sciences, PwC Switzerland 15 Feb 2022

Driven by innovations in biotechnology and patient services, pharma/life sciences and healthcare services continued to attract high levels of investor interest through 2021. An increasingly important feature of the health landscape is capability-driven deals, with many companies using mergers and acquisitions to get access to new tech such as mRNA and gene therapy. With these factors still in place and plenty of capital available, M&A activity and valuations are likely to remain vigorous over the coming 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?

We’re still observing stiff competition, especially for medium-sized biotechnology platforms, between large pharmaceutical companies and institutional investors (venture capital, initial public offerings, etc.). As we foresaw already a few months ago in our last report, traditional pharma businesses are attempting to optimise their portfolios by divesting non-core assets to free up capital for investment in innovation and filling gaps in portfolios.

A continued increase in health multiples means that buyers have to think even more carefully about how they’re going to capture and create value post-deal. In the current market, with a long-term plan it should be possible to unlock value; leave things to chance, however, and it could be a struggle to generate the wished-for return on investment.

Main themes driving M&A in the health industries

Portfolio optimisation 

Players in the health industries are endeavouring to redirect capital to innovations in patient treatment and efforts to reinforce their pharmaceutical pipeline. Interest is particularly strong in acquiring specialists in cell and gene therapies, mRNA and digital analytics.

Large players will keep on letting go of non-core businesses to focus on building speciality platforms. We’re likely to see growing divestment of consumer-focused businesses (for example over-the-counter products) and acquisitions of speciality pharma developers, and contract development, manufacturing and research organisations.

Digitalisation of the patient experience  

Business models in the health industries continue to digitise and digitalise, with digital analytics technology, smart health devices, healthcare practice management software and consumer-centric delivery models all increasingly intersecting. This is driving cross-sector deals as established operators endeavour to modernise their business models accordingly.

The upshot of this is that companies in the health industries are increasingly acquiring tech companies or partnering with them to capitalise on digital solutions, including mining and monetising large sets of patient data, with the aim of enhancing interactions and enabling a more personalised experience for payers, providers and consumers.

Environment, social and governance (ESG) considerations

One way companies in the health industries are endeavouring to remain attractive investment opportunities is by trying to meet evolving investor, stakeholder and government criteria as an indicator of their contribution to solving global societal challenges. Climate change, human rights, diversity and inclusion, product quality and patient welfare, market and selling practices, data protection and business model resilience are just some of the ESG considerations playing a growing role in the approach of many companies in the health industries. While the environmental side has already been a strong focus of the industry over the last years, we believe the S & G will become much more relevant. Managing access and affordability across stakeholders will be of great importance, as will quality and patient safety/welfare as new technologies come to market. We believe that managing these ESG areas properly will be crucial for sustained success in the market and justify a valuation premium.

M&A trends in 2021

Global health industry deal volumes grew substantially between 2020 and 2021, and values were also up, partly thanks to an increase in the number of megadeals. A striking development is the increase in M&A funded by private equity. Private equity was a driver of the strong activity in healthcare services, where multiple large platform deals took place, with the continuous roll-up of smaller groups and individual practices across multiple subject areas. We also saw several secondary or tertiary buyouts. While valuations are high, available capital and focus on value creation led to a contested market for attractive assets. The UK was still the area with the strongest activity, followed by DACH and France, which also had strong years in terms of deal volume. In terms of deal value, DACH was the main driver thanks to several large deals (USD >1bn), most of which occurred in Switzerland.  

EMEA health industries deal volumes and values

Health industries deal volumes and values, 2019-2021

Bar chart showing M&A volumes and values globally for health industries. Deal volumes increased by 32% between 2021 and 2020 and deal values increased by 65% over the same period.

Sources: Refinitiv, Dealogic and PwC analysis

What about M&A in the Swiss health industry?

Like the global trend, Swiss M&A activity in the health industry space was hot and has grown year-on-year in terms of the number of deals, broadly reflecting sector M&A activity in EMEA as a whole. The hot M&A market in the HI space was again fuelled by pharma and life science transactions, while we also started to see the return of health services deals.  

Deal values were also on the rise, but were heavily influenced by the comeback of megadeals. Switzerland saw two megadeals: with CSL Limited’s public tender offer for Vifor Pharma and Lonza’s divestiture of its speciality ingredients business. But even excluding megadeals we saw growth in terms of value, reflecting the need to invest in more mature companies and the attractive/high valuations across the industry. 

In health services one of the interesting transactions was Novartis’s acquisition of Arctos Medical and its expanding optogenetics portfolio. This is a prime example of capability-driven deal making, which we expect to continue to be a main M&A driver.

Pharma & life sciences: Swiss deals

Biotech transactions saw substantial growth in 2020 as the sector showed great resilience to the Covid-19 pandemic. The trajectory continued and pharma and life science M&A had a record 2021. Interestingly, 14 out of 24 the biotech transactions recorded involved venture capital and private equity investors.

Medtech had a strong comeback after suffering more than other segments of the industry from the pandemic. As predicted, we saw increased activity in 2021 with prominent deals such as Sulzer’s spin-off of Medmix and DJO’s acquisition of Mathys AG Bettlach. 

In pharma, M&A activity proved strong as well after a small decline in 2020. Out of the 16 recorded deals in 2021, four were completed with the involvement of private equity investors. Some were searching for exits in the attractive market environment, such as Nordic Capital and Avista Capital Partners, who exited their portfolio company Acino International AG to Abu Dhabi Developmental Holding.

As predicted, with the attractiveness of the industry and significant dry powder available, we saw the volume of private equity transactions increase in 2021. 

Top five Swiss deals

Health industries have a global footprint and deals are predominately cross-border. Swiss health industry M&A was driven by both Swiss investors acquiring assets globally and Swiss assets being sold to foreign buyers. On a country level and in line with overall M&A trends, sector activity in HI picked up in 2021. 

Swiss buyers were more active and purchased around 25% more assets than the year before, representing growth in all three main regions of the world.

With respect to Swiss-based companies undertaking transactions, the picture is similar: Investors engaged in more deals targeting Swiss assets in 2021 than in the year before. In absolute terms, it was primarily acquirers from EMEA buying Swiss assets that drove the number of deals.

Buyer and Target Geography
To summarise: look forward to vigorous M&A activity, but regulatory headwinds might come up 

Various lively developments ‒ the consumerisation of healthcare, business model disruption and digitalisation, healthcare services consolidation and resale, portfolio optimisation, and new applications for mRNA after COVID-19 ‒ will keep the health industries on their toes and ensure that dealmaking remains vigorous in the coming months. However, the global footprint of health industry companies also means that regulatory uncertainty in the US poses a risk to worldwide M&A. For example, the antitrust focus of the Federal Trade Commission may rule out larger deals in 2022, and proposed pricing reform legislation could have a significant impact on cash flows available to invest in M&A.

“Many factors point to a continuation of the lively dealmaking we’ve seen in the health industries. Pharma companies have a massive amount of fire power and will need to continue to fill their pipeline with promising drug candidates and technology.”

Luca Borrelli,Director, Pharma and Life Sciences, PwC Switzerland