Global M&A Trends in Health Industries: 2022 Outlook

Mergers and acquisitions (M&A) activity and valuations in health industries remain high with no signs of a slowdown in 2022.

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.”

Tobias KlimpeGlobal Health Industries Deals Leader, Partner, PwC Germany

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

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

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

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.

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.