Executing Successful Healthcare Cross border M&A deals
Strategic healthcare M&A rebounded in 2021 from a down year in pandemic-ravaged 2020, with volume up 16% and total deal value rising by 44% to $440 billion.
The year 2021 brought with it a return to pre-pandemic trends across all five sectors: pharmaceuticals, medtech, payers, providers, and healthcare services.
What’s different this time, though, is that the cost of acquisitions has become dramatically more expensive in most areas, with deal multiples reaching the highest level in decades. The median healthcare deal fetched 20 times forward-looking enterprise value (EV)/EBITDA in 2021, a full five turns higher than in 2019, the last time that volumes were as high.
Paying for these inflated multiples requires companies to get more creative in their deal theses and focus on better execution to deliver on deal value.
Here’s what the best acquirers are doing:
- Healthcare acquirers are increasingly thinking about revenue synergies in their deals. It’s a trend that is happening in other industries, too. Across all industries, the percentage of large deals (that is, deals greater than $1 billion in value) with announced synergies that included revenue synergies rose from 4% in 2016 to 16% in 2021.
- Successful healthcare companies are not shying away from looking outside their borders for growth.
- Many companies are continuing to opt for carve-out acquisitions (vs. full-asset acquisitions), which maintained their decades-long average of 30% to 40% of total transaction volume.
- The number of transactions aimed at adding a new capability have risen dramatically from 11% of healthcare deals among the top 250 largest transactions across industries in 2017 to 18% in 2021.
Some cross border transaction examples:
In 2021, midcap pharma companies took a page from their large-cap competitors’ playbooks and went after large acquisitions to broaden their access to new products and therapeutic areas. Among the activity, examples include Horizon Therapeutics’ (Ireland) more than $3 billion acquisition of Viela Bio ( USA and exit of Astra Zeneca, UK and Sweden ) to continue to expand its position in autoimmune diseases, and Servier’s (France) $2 billion carve-out purchase of Agios Pharmaceuticals’ (USA) oncology business to enhance its position in that area.
Unlike other industries, in which cross-border deals are becoming less popular, healthcare is experiencing a steady rise in deals that stretch across geographies. And nowhere is healthcare cross-border deal value as high as it is in Europe. After two years of declines, transaction value from corporate healthcare acquisitions of European targets increased by 224% in 2021. The European pharma sector used M&A to fill pipelines and boost top-line growth.
That was the case with Sanofi’s (France) purchase of Translate Bio (USA) and Roche’s (Switzerland) acquisition of GenMark Diagnostics (USA), for example. In Medtech, Tecan (Switzerland) bought Paramit (USA), developer and manufacturer of medical devices and life sciences instruments and Philips (Netherlands) acquired Capsule (USA), provider of data platforms and BioTelemetry (USA) , monitoring services, for €2B, with these deals reflecting the multiyear global trend of pursuing category leadership through M&A.
In diagnostics, Exact Sciences (USA) bought for $410 million Oxford spin out, Base Genomics (UK). In Biotech, In Medical Equipment, Siemens Healthineers ( Germany) bought Varian Medical Systems (USA), oncology equipment, for €13 B. Australian biotech company CSL’s acquisition of Swiss drugmaker Vifor Pharma for almost $12bn.
Healthcare services saw high deal activity in contract development and manufacturing organizations (CDMO), especially CDMOs with a differentiated or specialized offer. Icon’s (Ireland) $12 billion purchase of PRA Health Sciences (USA) is an example of an acquirer adding scale and breadth by buying a differentiated outsourcing provider. Pharma and Medtech companies will continue to look for outsourcing, both to secure supply continuity and to absorb demand peaks for fill and finish services in vaccines, for example, providing a tailwind for CDMO deal volume.
How become successful in cross border M&A deals
Cross-border transactions will remain at elevated levels as Private Equity groups and strategic players continue to build regional growth platforms and/or enter new markets. They want to broaden their access to new products and therapeutic areas and achieve global leadership in their segment.
Some Key Success Factors:
- In a geographic expansion or consolidation , you need to create access to owners of your selected targets. Therefor you need local support from your M&A advisor, who understands the culture and Healthcare market to approach acquisition targets and manage the process.
- In a Buy mandate you want to look for best suited targets to fill your gaps and create value return . In a Sell mandate you want to achieve highest value and a secure deal. In both cases, a global Healthcare expert team will generate more and better fitted targets and buyers. Which will generate more value for seller and buyer.
- Understanding in detail the values of the target, including IP, technology, client portfolio …and the post-acquisition synergies in sales and cost structure is required to be competitive in an auction or global sell process, with PE’s becoming more aggressive.
- In cross border transaction you need to match not only the expectations of both parties, but also manage the cultural differences between them and the different regulatory & compliance, legal, financial reporting, social security, tax, employment matters, competition and merger control aspects.
- Today, New Technology may be created everywhere on the globe. So an internationally based advisor, will offer the resources and Healthcare experience to find them.
CDI Global offers with its healthcare team, of 15+ experts, located in all geographic regions and covering the different segments from Pharma & Biotech, Medtech, Services, Providers to Software & IT, a strong base to support clients , PE and strategic ones, in their M&A process and transactions. The several, closed over the last years, cross border healthcare transactions broadens CDI Global expertise continuously.
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By Marc De Clerck, CDI Global Member