In December 2015, we reported on the record-setting M&A activity in the life sciences sector in 2015. In a post last month, we also reported on a recent surge in M&A deals in the pharmaceutical industry, including $40 billion worth of deals announced in one day. Now, a recent report by EY suggests that while the flurry of M&A activity may be tapering off, company expectations remain high with respect to future deals in the life sciences industry.
In particular, the report notes that 45% of life sciences executives surveyed are still expecting to pursue acquisitions over the next year, while 50% currently have three or more deals on the go. Further, 58% of executives surveyed indicated that M&A opportunities have increased in priority on their boardroom agendas. Overall, the report cites that the majority of executives have a positive outlook towards M&A in the life sciences sector, with 94% of those surveyed saying that they see the market as stable or improving.
Despite the optimistic outlook, the report notes that the number of deals called off increased from 71% six months ago to 91%. Many of those surveyed pointed to due diligence and valuation gaps as the primary reasons that planned acquisitions were cancelled, while regulatory reviews also remained a common concern.
The report also noted that the U.S. Treasury’s announcement of changes to the tax rules affecting cross-border transactions could suppress the frequency of deals in the life sciences sector, as one major pharmaceutical deal has already been called off this year as a result of this shift in tax policy. However, the ultimate impact of these regulations remains to be seen.
The author would like to thank Samantha Cass, articling student, for her assistance in preparing this legal update.
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