Pharmaceuticals and life sciences (PLS) and healthcare services (HCS) continued to attract high levels of investor interest throughout 2021, led by innovations in biotechnology and patient services. Capability-driven deals have increased in relevance for many companies, including deals that provide access to new technologies such as mRNA and gene therapy. Looking ahead, we expect that an abundant availability of capital will continue to fuel M&A activity and valuations over the next year.
Competition between large pharma companies and institutional investors—venture capital (VC), initial public offerings (IPOs), etc.—remains high, particularly for medium-sized biotech platforms. As we anticipated in our mid-year update, traditional pharma companies are optimising their portfolios by divesting non-core assets in order to free up capital to invest in innovation and address portfolio gaps.
As multiples continue to increase, buyers need to define their post-deal value capture-and-creation plans. Companies with well-crafted long-term plans will be able to unlock value in the current market, while those that take a hands-off approach may struggle to earn the desired return on investment.
“We expect deal activity to remain high in 2022, as companies look to optimise their portfolios for growth. Innovative biotech and med device companies will continue to be attractive M&A targets.”
M&A hotspots
We expect the following areas to be M&A activity hotspots during the next six to 12 months:
Pharmaceuticals and life sciences
- Traditional big pharma players seek to optimise their portfolios by divesting over-the-counter and other less innovative platforms, and continuing to target biotech companies at the frontier of science, such as cell and gene therapy or next generation therapeutics.
- Prolonged effects of the pandemic and the emergence of new variants suggests vaccine demand will remain high. Innovative companies that can deliver efficiencies in the mRNA manufacturing process and address bottlenecks in equipment availability experienced by vaccine manufacturers will draw significant interest from investors.
Healthcare services
- Speciality care platform roll-ups are coming to market, as investors reach the end of their desired holding period and seek to sell to the next tier of private equity (PE) funds, which have significant dry powder to deploy.
- Telehealth, health tech, and data and analytics companies that enable quicker, more efficient and/or virtual delivery of patient care via automation and digital solutions such as clinical decision support present value creation opportunities and are attracting investor interest.
- Cross-border transactions will remain at elevated levels as PE groups and strategic players continue to build regional growth platforms and/or enter new markets.
M&A activity and values
Health industries deal volumes and values, 2019-2021
Sources: Refinitiv, Dealogic and PwC analysis
Deal volumes and values in health industries increased between 2020 and 2021 by 32% and 65%, respectively. The growth in deal values was partly attributable to an increase in the number of announced megadeals—those with a deal value greater than US$5bn—from six in 2020 to 18 in 2021. Health industries saw increased M&A from PE funds, which accounted for approximately 49% of deal volume and 54% of deal value in 2021, a marked increase compared with the average over the previous five years of 33% and 28%, respectively.
Key themes driving M&A activity
Portfolio optimisation
Industry players seek to direct capital to innovations in patient treatment and to reinforcement of their pharmaceutical pipeline, with particular interest in acquiring companies specialising in cell and gene therapies, mRNA, and digital analytics capabilities.
Large strategic players will continue shedding non-core business units, to focus on building speciality platforms. We expect increased divestment of consumer-focused businesses (such as over-the-counter products) and the acquisition of specialty pharma developers, contract development and manufacturing organisations and contract research organisations.
Digitalisation of the patient experience
The ongoing digitisation and digitalisation of pharmaceuticals and life sciences (PLS) and healthcare services (HCS) business models through the intersection of digital analytics technology, smart health devices, healthcare practice management software and consumer-centric delivery models (including developing direct-to-customer digital therapeutics offerings) is driving cross-sector deals, as established players modernise their business models.
As a result, PLS and HCS firms are increasingly acquiring or partnering with tech companies to leverage digital solutions—including mining and monetising large datasets of patient information—to enhance interactions and offer a more personalised approach to payers, providers and consumers.
Environmental, social and governance considerations
Health industries offer increasingly attractive investment opportunities, as they meet the evolving criteria of investors, stakeholders and governmental institutions to provide a clear contribution to global societal challenges. We are seeing a number of ESG topics being incorporated by dealmakers into their due diligence processes and business models:
Topic
Relevance for PLS
Relevance for HCS
E
Climate change mitigation and adaptation
Waste and wastewater management
S
Human rights and working conditions
Diversity and inclusion
Access and affordability
Product/service quality and patient welfare
G
Marketing and selling practices
Patient data protection
Business model resilience and issue management
Source: PwC
Note: This is for illustrative purposes and does not represent an exhaustive list.
M&A outlook for health industries
- Consumerisation of healthcare
- Business model disruption and digitalisation
- Healthcare services consolidation and re-sale
- Capital allocation and portfolio optimisation
- After COVID-19, new applications for mRNA
- Regulatory headwinds
Consumerisation of healthcare
We expect to see a rise in consumer healthcare groups in 2022, following plans announced by GlaxoSmithKline, Johnson & Johnson, and Sanofi to spin off their consumer healthcare businesses into separately listed companies. Armed with direct-to-consumer expertise, these spin-offs have the potential to unleash growth in consumer healthcare brands by rewriting the sector’s marketing playbook. Operating as standalone businesses, they also have the potential to become significant M&A players in their own right.
Business model disruption and digitalisation
To unlock value, operators need to embrace digitisation and accelerate the adoption of digitalised practice management and digital solutions that put patients at the centre of the patient care journey. Staffing challenges, exacerbated by the pandemic, put further pressure on healthcare providers to find digital efficiencies to help bridge the gap left by a shortage of skilled employees.
Healthcare services consolidation and re-sale
Across the healthcare deals landscape, we see continued consolidation of private clinics and specialist care providers, such as skilled nursing or elderly care/assisted living facilities, which remain fragmented across different markets, as well as more focus on productivity improvements across health systems. Cross-border expansion through M&A will continue, creating healthcare platforms rather than country-by-country plays. Further, roll-ups that occurred over the last several years are coming to market, as investors reach the end of their holding period.
Capital allocation and portfolio optimisation
We expect large pharma companies will continue to seek to divest over-the-counter platforms and other non-core assets, while seeking to fill their midterm pipelines with medium-sized biotech deals. We also anticipate further M&A activity to address vulnerabilities around active pharmaceutical ingredients (API) sourcing, with some PE players setting up API platforms, enabling pharmaceutical companies to divest manufacturing sites in an effort to adopt a more asset-light strategy.
After COVID-19, new applications for mRNA
The success of mRNA COVID vaccines accelerated the widespread adoption of this technology. Vaccine providers—companies such as Pfizer, Moderna and BioNTech—will now look to expand into other areas. Development of mRNA vaccines for other diseases (e.g., influenza, shingles, HIV) is already underway, and researchers are working on mRNA vaccines for cancer. The potential for a massive increase in demand will make companies that can innovate to ease manufacturing bottlenecks attractive M&A targets.
Regulatory headwinds
Given the global footprint of health industries companies, regulatory uncertainty in the US poses a risk to worldwide M&A. In particular, the antitrust focus of the Federal Trade Commission may preclude larger PLS and HCS deals from happening in 2022; and proposed pricing reform legislation could have a significant impact on cash flows available to invest in M&A.
About the data
We have based our commentary on M&A trends on data provided by industry-recognised sources. Specifically, values and volumes referenced in this publication are based on officially announced transactions, excluding rumoured and withdrawn transactions, as provided by Refinitiv as of 31 December 2021 and as accessed on 2 January 2022. This has been supplemented by additional information from Dealogic and our independent research, and includes data derived from data provided under license by Dealogic. Dealogic retains and reserves all rights in such licensed data. Certain adjustments have been made to the source information to align with PwC’s industry mapping.
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Roel van den Akker
US Pharmaceuticals & Life Sciences Deals Leader, Principal, PwC United States
