Global M&A Trends in Health Industries

Dealmakers in pharmaceuticals and life sciences and in healthcare services are eager to get deals done in 2024 as they grow more comfortable navigating an environment of elevated interest rates and regulatory pressure. Competition for truly innovative assets remains intense. At the same time, companies are continually reviewing their portfolios for divestiture candidates that could unlock value and provide capital to deploy on new acquisitions.

Few in the industry expect to see megadeals that combine large conglomerates this year, but large pharmaceutical companies will continue to pursue biotech targets and products that can offset revenue declines from lost exclusivity in the coming years. Large companies continue to explore divestitures of select products or business units to enhance the growth prospects of their remaining portfolios. Such divestitures also serve as a capital-raising mechanism at a time when the cost of debt remains high.

As anticipated in our 2024 Outlook, demand for GLP-1 drugs, which are used to treat type 2 diabetes and to promote weight loss, is sending a shock wave through health industries and has led to significant M&A during the first half of 2024, including Roche’s acquisition of Carmot Therapeutics, which completed in January 2024. Biotech companies that can innovate in this space, especially those focused on providing an oral method of administration, will be highly sought after. Established GLP-1 players have also used M&A to ramp up manufacturing capabilities to meet the sky-high demand for these drugs. For example, Novo Nordisk’s $16.5bn proposed acquisition of contract manufacturing organisation, Catalent and Eli Lilly’s proposed acquisition of an injectable medicine manufacturing facility from Nexus Pharmaceuticals are both intended to add production capacity.

We do not think that these deals, aimed at bringing manufacturing capacity in-house, signal the beginning of a broader trend in the pharmaceutical industry. Rather, they are likely specific to the supply shortages resulting from the massive GLP-1 demand. Other pharmaceutical companies will likely continue pursuing asset-light and lean production strategies by outsourcing production to contract manufacturing organisations.

The broader pharmaceutical and life sciences sector continues to monitor demand for these GLP-1 drugs closely as the ripple effects of their widespread adoption are potentially extensive, affecting demand for products and services that currently treat diabetes, sleep apnea, cardiovascular disease and other conditions. Several pharmaceutical services companies have already expanded their networks and capabilities to reposition for the anticipated growing demand for GLP-1-related services.

• Role of the regulator: The United States Federal Trade Commission (FTC) and other regulators are closely monitoring M&A activity within the healthcare services sector and are expected to act in relation to any deals that may be perceived as disrupting access to—or increasing the price of—patient care. The industry is also closely watching the FTC review of the Novo Nordisk–Catalent deal to see if the regulator plans to bring enforcement action against vertical mergers.

• Divesting non-core assets: With higher interest rates forcing companies to demonstrate higher returns for shareholders, we expect companies will continue to strategically evaluate and identify non-core and margin-dilutive assets for divestment. The proceeds from these divestments will then increase the dealmaking capacity of those companies as they seek to acquire assets that align with their strategic visions.

• Pressure on rates of return: In addition to research and development (R&D) activity, pharmaceutical companies will seek to address gaps in their drug pipeline by directing capital toward biotech companies. With higher interest rates and required returns on investment, prepared sellers armed with good data supporting their value will receive the most interest from prospective buyers.

• Continued rollups of fragmented sectors: Private clinics, specialist care providers, dental clinics, veterinary clinics, and services groups such as ophthalmology, IVF, and nursing homes and elderly care remain fragmented. We expect that private equity will continue to focus on these sectors.

• Digital capabilities to deliver cost-effective value-based care: Companies seeking opportunities to digitalise through implementation of analytics technology, digital direct-to-consumer therapeutics offerings, smart health devices and other software innovations will continue to acquire or partner with data and analytics and other technology companies that can deliver these digital solutions.

Health industries dealmakers need to be constantly thinking several steps ahead to identify transactions that can drive growth, unlock value and create sustained outcomes. The need for health industries companies to transform their business models to keep pace with the new environment will continue to fuel M&A at a steady pace through the rest of 2024.

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