A month into the new year, speculation continues regarding the forces that will shape mergers and acquisitions (M&A) for 2018. EY recently released a report (the Report) forecasting possible M&A trends in the life sciences sector. As noted in the Report, while the total volume and value of M&A in the life sciences sector fell in 2017, the value of M&A in medtech increased 50%, driven by the pursuit of economies of scale in the therapeutic device market. Now, with newly implemented policies, such as tax reform in the United States, as well as other favourable factors, such as strong growth in emerging markets and a fragmented biopharmaceutical market, the Report suggests a more active year of life sciences M&A deals is on the horizon.
In developing a strategy for M&A in the coming year, the Report proposed six key questions to consider:
- What is our goal? Scaling up, diversifying, and expanding reach are all critical elements of building up a competitive business. These core considerations will be top of mind as life sciences companies consider their portfolios and strategies while contemplating potential M&A transactions in 2018.
- Is the timing right? We’ve previously covered recent changes to United States tax laws and European data privacy laws. These significant shifts underscore that timing of potential M&A transactions should be carefully selected. As noted in the Report, life sciences companies may seek to mitigate the associated risks of these changes through risk-sharing partnerships and joint ventures.
- Do we deliver value? Life sciences companies are facing increasing pressures from payers, as stated in the Report. In response, companies may adapt to ensure they are delivering value by diversifying to reduce commercial and policy risks, responding to competitive pressures in core markets, and seeking to develop their businesses beyond pharmaceuticals and devices towards services as means of differentiation.
- Are “mega-mergers” back? Established companies in the life sciences sector may soon face challenge by tech companies that have not focussed so far on the life sciences space. The Report suggests that this potential disruption of the status quo may trigger large-scale “mega-mergers” as means to maintain profits, ensure competitiveness in key therapeutic areas, and scale up the supply chain to face the new challenges that advanced technology will bring.
- How are we vulnerable? In the life sciences sector, the Report noted that even companies accustomed to acquiring targets may become targets themselves. For example, companies beleaguered with slow growth forecasts, lower valuations, and excessive debt may face difficulty in proceeding with customary.
- Will targets prefer to stay independent? Biopharmaceutical and medtech companies face a choice between acquisition and seeking to raise capital independently based on promising research and development. As noted in the Report, buoyant capital markets may currently offer an alternative to potential acquisition targets.
It’s clear that strategic thinking will be important to any successful M&A in 2018, including in the life sciences sector.
The author would like to thank Kassandra Shortt, Articling Student, for her assistance in preparing this legal update.
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