The Real Economy

Health care and life sciences deal flow

Jan 28, 2021
Health care The Real Economy Life sciences

In years past, the JP Morgan Healthcare Conference, held in mid-January, has heralded sector announcements of large partnerships, joint ventures, and mergers and acquisitions. This year, the health care sector could not even wait until the second full week of the year to kick off an acquisition announcement spree. While we may see investors pull back after last quarter’s investment spree to focus on integrations and operations, or to focus on other industries as they rebalance portfolios, the quick start is an early sign of what promises to be an active year for funding and mergers and acquisitions activity.

Through mid-January, we have seen more than $3.1 billion of announced deals in the health care services sector, largely driven by Centene’s $2.9 billion acquisition of the behavioral health provider Magellan on Jan. 4. Already, this deal represents 82% of last year’s first-quarter deal volume ($3.8 billion). It’s safe to say that year over year, we will see more health care services deal volume in the first quarter than we did last year.

The first 10 days of Q1 2021 reported 68% of total Q1 2020 deal volume across the health care sector
chart - HC deal - TRE 02/21 - chart

Meanwhile, the pandemic is shining a bright light on the potential of the life sciences arena. The pharmaceutical sector has already exceeded last year’s deal volume in the first quarter by $1.6 billion, due to Bristol Myers Squibb’s blockbuster $11.1 billion acquisition of MyoKardia. Biotech has been off to a slower start this quarter after posting $193.2 billion in 2020, its largest year for deal volume on record. While this year may not be as busy for pharma and biotech as 2020, there are no shortages of therapies that require funding.

Keen observers will note that the data above excludes the acquisition of Change Healthcare by UnitedHealth Group’s Optum for $12.8 billion. Such tangential deals in nonmedical services and health care technology will continue to see activity in 2021. Rock Health estimates that 2020 saw $12 billion in digital health venture funding, which nearly doubles 2019’s $7.4 billion. We expect 2021 will be an even busier year for digital health, given the disruption thrust upon the ecosystem by the pandemic.

Additional tail winds for deal volume across the entire health care ecosystem include reduced political uncertainty, a favorable interest rate environment and vaccination. Deal-makers have a continuously clarifying view of White House health care policy over the next four years, and the threats to the Affordable Care Act seem largely in the rearview mirror.

This improved certainty reduces some risk associated with executing deals. Meanwhile, the Fed has said it intends to keep interest rates low until at least 2023, which will make capital cheaper and deals more attractive. Furthermore, RSM estimates that $4 trillion of economic activity is currently sidelined, waiting to be unleashed once the populace has achieved herd immunity, social distancing requirements relax and businesses can return to full capacity.

The Takeaway

These powerful macroeconomic factors will fuel an incredibly active year in health care deal activity.

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