Healthcare M&A deal value reaches a record-breaking $546 billion in 2015 – more than twice the average annual value of the previous decade

HEALTHCARE M&A DEAL VALUE REACHES A RECORD-BREAKING $546 BILLION IN 2015 – MORE THAN TWICE THE AVERAGE ANNUAL VALUE OF THE PREVIOUS DECADE

Bain & Company's new report identifies several trends that are shifting the way healthcare is delivered and triggering industry consolidation; pursuit of category leadership is a winning strategy for weathering these changes

New York – April 25, 2016 – For the second year in a row, healthcare M&A deal value broke records in 2015, according the newly released fifth annual Global Healthcare Private Equity and Corporate M&A Report from Bain & Company.  The year's total healthcare M&A deal value reached $546 billion – 2.5 times higher than the previous decade's average annual value.  Yet, it's not clear how long the bonanza will last.  As the risk of recession looms and capital markets grow increasingly volatile, the odds of successful deal making will likely shrink, particularly for corporate buyers that lack the right fundamentals to capitalize on attractive opportunities in a downturn.

Corporate buyers, which make up the largest share of healthcare M&A by far, set a new record, $523 billion, with megamergers fueling much of the increase in value.  Five deals over $20 billion were announced during the year (excluding the now-defunct Pfizer-Allergan merger), which represented a third of healthcare M&A deal value.

"It's no surprise that 2015 was a big year for healthcare M&A," said Tim van Biesen, head of Bain's Healthcare Practice in the Americas and co-author of the report.  "Corporate buyers were on the hunt for deals of all sizes, so even without the year's megamergers, M&A activity in the industry would have easily surpassed the average annual deal value of the previous decade."

Over the last few years, corporate M&A across industries has benefitted from the macro environment.  A tepid economy has made organic growth more difficult, leading many firms to make acquisitions to boost their top line.  Additionally, the wide availability of inexpensive debt and strong equity values made M&A an attractive option. 

Against this backdrop, global M&A deal value reached a new high of more than $5 trillion last year, but the healthcare sector greatly outpaced overall M&A deals over the last three years.  From 2012-2015, overall M&A deal value grew at a compound annual growth rate (CAGR) of 24 percent; healthcare M&A deal value grew more than twice as fast, at a 50 percent CAGR.

With regard to healthcare M&A specifically, Bain identified several trends that are shifting the way healthcare is delivered, which is triggering industry consolidation.  This includes:

  • Growing demand for healthcare as a result of chronic diseases, aging populations and, in many developing regions, a growing middle class; 
  • Continued pressure to contain healthcare costs, which have consistently trumped GDP growth; 
  • Innovation that is bringing new treatment options and technologies to market; and 
  • New government regulations aimed at improving quality of and access to healthcare.

Based on its extensive work with healthcare companies around the world, Bain found that the pursuit of category leadership – depth, not breadth in a specific healthcare category – is almost always a winning strategy for weathering these changes.  As their customers look to trim supply chain costs, category leaders stand a better chance of maintaining their positions as preferred vendors.  They also typically have the resources to invest in growth when their competitors stall.

"Category leaders often have deeper relationships with their customers, opinion leaders and even regulators, which gives them better insight into the dynamics and evolution of a given category," said van Biesen.  "As a result, they can better target their R&D efforts and products to meet market needs.  They realize value from growth against specific customer-defined categories rather than building scale broadly across markets." 

Even with the prospect of a recession on the horizon, M&A will continue to be an important path for growth in the healthcare industry.  Bain has identified five key actions that can help companies raise their odds of delivering market-beating results from their M&A pursuits:

  1. Craft a clear strategy for leadership:  Define the categories in which you want to play and articulate which moves – organic and inorganic – are required to win. 
  2. Link deal diligence to your strategy:  Have a clear thesis for how any acquisition will support your strategy, and validate with due diligence. 
  3. Build a repeatable M&A capability: Build a team that can identify the right deals; tailor the integration to focus on the most critical sources of value; and learn from any missteps along the way. 
  4. Simplify your organization for growth: Identify products, geographies, and capabilities that deliver profitable growth, and pare back or even carve out the rest. 
  5. Be creative in deal making:  Don't be afraid to bring in deal partners or use creative structures to gain access to the assets that help you execute your strategy and to divest assets that don't fit with your strategy.

To receive a copy of report or arrange an interview with Mr. van Biesen, contact:  Dan Pinkney at dan.pinkney@bain.com or +1 646 562 8102

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