Pharmaceuticals and life sciences (PLS) and healthcare services (HCS) continue to attract substantial investor interest, and we expect this to continue during the latter half of 2023. As we highlighted in our 2023 M&A outlook, M&A remains a valuable transformation tool, even as increased antitrust scrutiny from regulators has made transformative megadeals more difficult to complete. Large-cap pharma companies continue to pursue investments in midsize biotech companies to bridge pipeline gaps, while portfolio reviews and divestitures of non-core assets remain top of mind. Private equity firms are eager to deploy their dry powder by acquiring innovative healthcare assets.
Challenging economic conditions and a persistent gap between buyers’ and sellers’ price expectations hampered some dealmaking during the first half of the year. However, as the valuation gap narrows, we expect an upswing in deal activity in the second half. With scarce initial public offerings, sale processes have emerged as the predominant investor exit strategy. Furthermore, with high interest rates creating a difficult financing environment, divestitures will likely become more important as a capital-raising mechanism. Public companies with underperforming stock prices are likewise vulnerable to take-private transactions initiated by cash-rich private equity firms. The emergence of generative AI has also added some effervescence to the market as health players seek to understand how to integrate it into their offerings and are compelled to acquire expertise.
‘Savvy health industry dealmakers who can navigate a tricky regulatory and macroeconomic landscape will continue to use M&A to innovate, grow in line with enterprise priorities and implement strategic portfolio measures. This way, they will stay ahead of their competitors.’
Pharmaceuticals and life sciences
- Major pharmaceutical conglomerates are actively seeking M&A opportunities, including cross-border deals, to fill in their pipelines and achieve their growth plans as patents for many top-selling drugs are scheduled to expire in the back half of the decade. Regulatory scrutiny has already caused delays in some larger deals announced in the first half of 2023, prompting dealmakers to approach prospective transformative deals with caution. We expect most companies will seek to mitigate this regulatory friction by executing an M&A strategy focused on acquiring a higher number of small and medium-size companies.
- The combination of higher interest rates and lower stock prices has put additional pressure on corporate divestiture plans to free up capital for M&A. Large pharma companies, especially, are actively reviewing divestiture candidates to align strategic priorities and specialisations, mitigate upcoming patent expirations, and optimise portfolios. Recent C-suite succession planning at several key large pharma companies may trigger proactive portfolio reviews and set off a flurry of both divestitures and acquisitions.
- Private equity firms continue to show interest in contract research organisations (CROs), contract development and manufacturing organisations (CDMOs), and medtech companies. Declining public valuations present opportunities for public-to-private transactions in these sectors.
Healthcare services
- The consumerisation of healthcare continues. Vitamins, minerals and supplements companies and nutraceutical companies command high multiples, and we expect these to remain attractive assets. Newly separated pure-play over-the-counter businesses and consumer health businesses will seek to fast-track their own transformation plans via M&A, broadening their product portfolios with acquisitions in a highly fragmented landscape. We expect that private equity firms will continue to execute a portfolio buy-and-build strategy to grow their own platforms, creating scale and greater cost efficiencies.
- Private clinics, dermatology, ophthalmology, veterinary care, and other specialist care providers and services groups, which remain fragmented across different markets, will continue to consolidate. Dealmakers who have recently executed roll-ups in these sectors will need to focus on integration and value creation to achieve desired margins and prepare for exits over the next few years.
- In healthcare and hospital settings, governmental fiscal support in most countries has been significantly reduced from pandemic-era highs. At the same time, healthcare and hospital operators are facing significant operational and cost control challenges due to persistent shortages of skilled employees and high wage inflation. The combination of these funding and profitability pressures may give rise to an increase in restructuring activity and potential for distressed M&A.
- These challenges further intensify the enthusiasm for digital solutions that create opportunities to unlock value, streamline operations, and place patients at the centre of the patient care journey. Telehealth, health tech, and analytics companies remain highly desirable assets, especially among tech players that have long recognised the potential to apply tech solutions to the health market to address operational difficulties. The surge in interest around generative AI has created a greater sense of urgency among healthcare providers to identify and develop ways to integrate large language models into technologies to enhance patient engagement, improve support, increase patient satisfaction, and streamline administrative processes. We expect health services companies to use M&A, along with partnerships and strategic alliances, as ways to acquire new capabilities that will enable them to introduce new AI-powered tools such as virtual assistants or chatbots that are able to answer queries, provide personalised health recommendations, and even assist with appointment scheduling.
Societal benefits of health industries attract dealmakers
- Health industries companies offer attractive environmental, social and governance (ESG) investment opportunities because they satisfy many of the evolving criteria of investors, stakeholders and governmental institutions requiring them to provide clear contributions to remedying global societal challenges such as access to affordable drugs and healthcare. As a result, we expect a broader range of ESG factors to be reflected in business models and considered as part of due diligence processes.
2023 mid-year M&A outlook for health industries
M&A remains a vital tool for health industries companies, enabling them to drive business transformation and deliver sustained outcomes by creating value over the long term. Despite regulatory frictions, M&A activity in health industries will remain robust, with the potential for acceleration in the second half of 2023 as valuation gaps between buyers and sellers begin to narrow and companies pursue innovative tech and AI-powered solutions to meet their strategic and operational challenges. Dealmakers should prepare for a more dynamic second half of 2023.
Explore our local M&A trends in Health Industries from the following countries:
Want to know the M&A trends we expected in Health Industries at the beginning of 2023?
Contact us
Contact us
