Health sector results from our 16th Capital Confidence Barometer (CCB) indicate that executives remain positive in 2017, with improved economic fundamentals driving organic growth.
Biggest risks include cybersecurity
Concern around cybersecurity was the top reason cited as to why deals failed over the last 12 months. As the recent WannaCry attack demonstrated, acquisitions that lack up to date security measures can be a liability, as they may be a vulnerable entry point into an otherwise secure environment. Executives are justifiably cautious.
Issues uncovered during due diligence was the next largest concern. The use of analytics to derive high quality insights from structured and unstructured data sets has never been higher, enabling companies to rapidly identify and raise issues prior to deal completion.
From a macroeconomic perspective, volatility in capital markets and uncertainty about US government policy is slowing decision-making around investment. But caution, not pessimism, seems to rule the day: only 10% of health executives worry that the new US administration will implement policies that will reduce M&A activity. Similarly, 70% responded that Brexit is not influencing decision making about making investments in the UK.
Biggest disruptor: digital and new technologies
Digital disruption is top of mind for health executives. The impact of new technologies on the current business model is the issue most frequently discussed in the boardroom. Disruptive technology and potential changes in trade policies are compelling companies to be more responsive, and more frequent, in their portfolio and operational reviews.
M&A confidence: optimism with ongoing deals and pipelines
Uncertainty about policy and capital markets is influencing a relative pause in M&A activity compared with 2016’s record levels. Pipelines remain focused and stable with more than 75% of respondents reporting that they expect no change in pipeline size. Optimism remains high with ongoing deals, as 94% of executives expect deals to close at the same rate or higher than last year.
Of those looking to achieve strategic goals through M&A, more than 75% anticipate pursuing small deals (<US$250m). Strategic growth is the focus for this group, which reports a desire to tap into new areas of geographic and market share growth.
The outlook: growth expectations stay high
Fluctuations in currency and capital markets are moderating last year’s record breaking deal levels. Expectations for growth remain high, and interest in new geographies and cross-border activity has moved to the forefront of the boardroom agenda.