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Deal pipelines remain full

Global Capital Confidence Barometer | Life Sciences | 16th edition

Policy reform and portfolio rationalization heighten dealmaking activity across the life sciences spectrum

The strong finish to 2016 and elevated dealmaking so far in 2017 are helping keep executives’ intention to enter into deals themselves well above trend, according to our latest Global Capital Confidence Barometer.

Forty-six percent of life sciences executives surveyed say they plan to actively pursue deals in the next 12 months, while 92% of life sciences companies with greater than US$5b in revenues are likely to pursue deals. One third of executives say they have five or more deals in their pipeline — last year, only 6% of executives had five or more deals. Of the larger companies (revenues of US$5b+), 79% have more than three deals in their pipeline, and 55% of these expect their pipeline to grow.

M&A market expected to improve

About 40% expect the global M&A market to continue to improve in the next 12 months, a view even more prevalent among medtech companies, with 65% of the respondents expecting the M&A market to improve — not surprising given the ongoing consolidation of medtech’s key customers, hospitals and other providers.

So far, the 2016 US election results and the impending exit of the UK from the EU have done little to dampen the fundamental strategic drivers of M&A. While 32% say that greater clarity around the EU’s Brexit negotiations has had no impact on their likelihood to invest in the UK, 45% indicate that the recent US policy announcements will create more M&A opportunities. In addition to a potential reduction of the US corporate tax rate, repatriation of trapped cash by US companies could add a potential US$200b to dealmaking resources.

Disruptive forces at play

Not to be underestimated in this drive to execute deals are payer pressures across the life sciences sector — particularly on pricing — changing consumer preferences, and the impact of digital technologies on business models and competitive advantage. These disruptive forces have life sciences executives contemplating not whether they should invest, but rather how they should invest and with what deal structures, partners and business models.

The need to grow market share (25% of respondents), expand into new geographies (22%) and acquire/access new technology (16%) are the key drivers underpinning dealmaking intentions. Most of these transactions, though, are likely to be bolt-on; the largest deal size for 52% of life sciences executives who have deals on their radar is less than US$250m. Most of the larger deals are likely to be driven by pharma/biotech companies with revenues greater than US$5b.

Life sciences execs focus on generating shareholder value

Life sciences companies are tackling another area that has been increasingly important to generating shareholder value — portfolio optimization. Sixty-four percent of executives report having increased the frequency of their portfolio review process to capitalize on disruptive forces in their sector.

In doing so, life sciences companies are finding assets that are ripe for divestment, even as they search for acquisitions that will improve competitive advantage, demonstrate value and ease pricing pressures. Although life sciences company valuations have increased since late 2016 as stock prices have rebounded, almost half of those surveyed (49%) expect to close two or more deals in the next 12 months.

Larger companies (revenues of US$5b+) expect to execute at a faster pace, with 50% of executives likely to close three or more deals in the next 12 months. Consequently, we expect dealmaking to continue at a healthy pace throughout the course of the year.

EY - Jeff Greene

Jeff Greene

EY Global Transaction Advisory Services Leader

Life Sciences

+1 212 773 6500


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