2019 Annual Health Care and Life Sciences Industry Spotlight
"Dealmakers are looking for targets that can provide technology innovations or readily applicable tools to health practices." - Ron Ellis, Senior Director, Transaction Advisory Services, RSM
While the annual volume of mergers and acquisitions (M&A) in the health care industry slid in 2019, the total value of those deals remained well within the high range seen throughout the decade. Nearly 1,800 transactions closed across Europe and North America totaling $429.5 billion. It appears dealmakers are still willing to pay up for the right prospects.
“The health care market is still fragmented across multiple regions,” says Ron Ellis, senior director in transaction advisory services at RSM US LLP. “There are still plenty of opportunities for consolidation.” One of the other key drivers propelling M&A in this space at a healthy rate is the desire for exposure to or acquisition of relevant technologies. Ellis also notes that as the consumerization (referring to increased digitization of processes for consumers to improve convenience and transparency) of health care continues, hospital chains and other providers are looking to acquire or develop capabilities in realms such as telemedicine or patient facing, which are easy-to-use applications for virtual care. This and the drive for consolidation of physician practice specialties look set to continue, which should help spur significant levels of M&A going forward. Key indicators to consider, however, do remain; chief among them is a diminishing appetite for acquisitions as avid competition keeps transaction multiples high.
“It’s still a very strong environment for dealmaking,” says Adam Lohr, partner and life sciences senior analyst at RSM US LLP. “Our clients’ primary concerns remain on how they are going to access capital while the economy is still hot.”
“Long term, health care is still viewed as a growth industry,” says Ellis. “However, from year to year, potential shifts in political environments or macroeconomic trends can encourage more buying or more selling. For example, given the uncertainty around 2020 elections, sellers may be incentivized to get deals done sooner rather than later.”
As we consider the future of this industry, it’s important to note the underlying and somewhat interconnected drivers of aging demographics and increasing health care costs. These factors look to be even more potent as the full force of baby boomers’ retirement materializes throughout the 2020s. But there are significant variables to consider beyond broad economic trends. “The biggest threat to pharma and biotech companies is a potential shift to benchmarking drug pricing against a truly global level of competition,” says Lohr. “That would have a huge impact on the entire American life sciences ecosystem. However, much of the uncertainty around drug pricing related to the 2020 elections, in particular, has been priced into the market. Overall, if the global and U.S. economies can continue to be reasonably stable, any market volatility is likely to be overcome.”
Datagraphic available for download.