North America and Europe dominate M&A deals in 2013, finds report

Life science and healthcare M&A activity has been making robust progress globally, driven partly by a positive valuation environment and innovation in booming markets such as biotechnology, private equity exits, and corporate spin-offs, finds a new report by international law firm Squire Sanders.

2013 has seen the return of higher-value deals, with the 455 transactions announced in the first six months of the year reaching a total value of US$78bn – up 6% compared with the same period in 2012, according to the global M&A report, Life Sciences and Healthcare 2013, published by Squire Sanders in partnership with Mergermarket.

The report reveals a trend towards higher value biotechnology deals. In 2013, $27.3bn in dealmaking was generated from only 62 deals. Examples include Life Technologies’ $15bn acquisition from Thermo Fisher and Elan Corporation’s $8.6bn purchase from Perrigo.

In the US, consolidation in the healthcare sector is being driven by the Affordable Care Act, which has changed reimbursement methodologies, forcing providers to find greater efficiencies. In July, Community Health Systems agreed to a $7.1bn buyout of Health Management Associates.

Although private equity has recovered since the global economic downturn, it remains below pre-crisis levels. In 2012, there were 182 buyouts worth $14.5bn in total, compared with 225 transactions worth $58.8bn in 2007.

We are also seeing large pharmaceutical firms providing early-stage financing for new drug companies

The dominance of North America as a life sciences and healthcare M&A target region shows no signs of abating, the report says. From the beginning of 2012 to 2013, the region captured 44% of global deal volume in these sectors and 67% of aggregate value.

Western Europe follows a similar trend, capturing nearly a third of global deal volume and value, despite the region’s fiscal challenges. In the period 2012 to 2013, the largest deals have been cross border transactions involving buyers from North America. In many cases, these include profitable US companies purchasing ailing European firms.

Asia-Pacific maintains a small but significant share of the M&A landscape, with its share of volume rising from 17% in the years between 2008 and 2011 to 21% from the beginning of 2012 to December 2013.

Latin America makes up only a small proportion of overall deal activity, the report says. Between 2008 and 2011 the region accounted for 3% of global deal volume and 1% of value. These proportions rose to 4% of volume and 3% of value in the period from 2012 to 2013.

Cross-border dealmaking is one of the healthiest categories of life science and healthcare M&A. The last four quarters to June 2013 saw 329 deals worth $62bn, marking an increase of 4% in volume and 12% in value compared with 315 deals announced in the previous four quarters worth $55bn.

Maureen Bennett, Co-chair Life Sciences & Healthcare Industry Group at Squire Sanders, said: 'In the pharmaceuticals section, as firms attempt to replenish their pipelines, they have looked to acquire smaller businesses in more niche areas, such as rare diseases, that are more certain to ensure profits, albeit smaller ones.

'We are also seeing large pharmaceutical firms providing early-stage financing for new drug companies. Through doing so, they are building relationships early and are well positioned to make an acquisition further down the line.'

She added that US companies have continued to focus on restructuring business lines, and investing in drugs still undergoing clinical trials or early stage drugs, as well as rights to commercialise drugs in new markets.

Ageing populations are spurring activity in the developed economies

William Downs, partner at Squire Sanders, expects government healthcare reforms worldwide to lead to increased commercial and M&A activity.

'In the UK, procurement of clinical services through healthcare practitioner-led clinical commissioning groups and other reforms will drive increased private sector and charity sector provision to the NHS,' he said. 'In addition as emerging markets open and increase their levels of healthcare provision businesses will continue to become more global.'

In Asia, much of the M&A activity is in China and India, where there is enormous growth and strategic investment, added Stephen Chelberg, Asia-Pacific Chair of the Global Corporate Practice at Squire Sanders. 'But ageing populations are spurring activity in the developed economies and the Japanese government is currently experiencing pressure to decrease the price of healthcare to keep the system sustainable.'