Capital Confidence Barometer – Life sciences | 15th edition

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In EY’s 15th Capital Confidence Barometer survey of life sciences executives, we found that M&A expectations, although not quite back to the penultimate high of October 2015, have continued at near-record levels. In fact, despite the economic and political uncertainties at the time of this survey, 54% of life sciences executives expect to pursue deals in the next 12 months, up from 45% six months ago.

Growing market share remains a top priority as payer pushback and more competitive pricing are leading companies to become more focused on their core competencies. Among other findings:

  • Although life sciences executives are expecting to pursue more deals than six months ago, they are a bit more cautious in the number and quality. Brexit, uncertainty over the US elections and market volatility all seem to be playing a role in the timing of deal execution. That said, their confidence in the likelihood of closing acquisitions remains undeterred.
  • Despite a level of caution, deal pipelines are overflowing, with 43% of life sciences executives indicating they have five or more deals in the pipeline, and the weighted average among respondents has increased from three deals to four, which is significant. The prolonged pressure to pursue deals is reaching an apex for a number of reasons, including:
    • More opportunities advancing through the pipeline
    • Life sciences executives scouring the landscape for more deals in the face of macro pressures
    • More companies pursuing smaller deals that augment or fine-tune existing capabilities

    EY - How many deals do you currently have?
  • The drop-off in deal sizes may be attributed to increasing concerns around regulatory oversight, which is expected to continue. At the same time, smaller targets tend to result in an acceleration in deal completions, often because the deals are less complex and may not need the same level of rigor around due diligence.
    In past years, the focus was on geography and businesses, which drove up deal sizes. Now, life sciences companies know where they want to focus the business and are looking to close the gaps and find the missing pieces to complete their portfolio.

    EY - What is your largest planned deal size?
  • While valuation gaps show little change from six months ago, it appears that companies are looking for the right asset and are willing to pay a premium to remain competitive. With a large proportion of life sciences companies narrowing their focus, their drive is to become a leader in their core competency and as a result, they expect to pay a bit more for the right asset. That said, they are only willing to overpay when it is a strategic priority.
  • Post-mortem analysis of M&A over the past several years reveals that a significant number of deals were aimed at boosting the bottom line and other near-term financial metrics. These drivers have resulted in some major adverse outcomes. Most notably, a majority of specialty pharma stocks have declined (several by 80% or more) largely because of debt-financed deals where the projected growth has not transpired, but the debt overhang remains.

    As a result, life sciences respondents offer a more cautious outlook, with 14% feeling negative about the likelihood of closing deals. At the same time, life sciences executives are moving through the deal process with their eyes wide open and with a measured approach that counters the pressures to do more deals.
  • In the last 12 months, 89% of life sciences companies have canceled or failed to complete a planned acquisition, up slightly from 85% six months ago. The foremost reason is the valuation gap between buyer and seller. However, issues uncovered during due diligence and investor or board scrutiny also remain high on the list.

    Given the heightened competition for scarce, high-quality assets in select growth areas such as oncology, combined with one in five companies losing a deal to competitors, the value of strategic agility may be one of the most important findings. Although it’s okay to walk away, the value of the lost deal could have more detrimental impact than originally foreseen.
EY - 54% expect to actively pursue acquisitions EY - 89% are dealing to walk away from deals EY - 43% have five or more deals EY - 19% city issues uncovered

To read more from this latest Capital Confidence Barometer – Life sciences report, click here for the full report pdf. Results from previous surveys are also available at

For insights and findings from our Global Capital Confidence Barometer report, go to