In the first quarter of 2018, M&A activity across the world hit a 17 year record high according to Mergermarket’s Q1 2018 Global M&A Report. This is an 18 percent increase in value compared to the first quarter of 2017. This increase was affected by the surge in deal-making seen at the end of 2017 which carried over into 2018 as the US experienced mega US healthcare deals. In fact, US M&A activity during Q1 2018 was reported to represent 44.2% of the total global share. According to data from Bloomberg, the healthcare sector has already reported $156 billion in deals and that this is the busiest start for healthcare M&A in over a decade. Deals have involved various parties, such as pharmaceutical companies, payers, investors, hospitals, and health systems.
So, why did healthcare M&A have such an impressive year in 2017 and a strong start to 2018? Bain & Company has some ideas. Part of it may be due to the blurred lines between sectors as a result of non-healthcare players, such as Apple, Amazon, Samsung, and Tencent, entering the fray. Another factor could be that more traditional forces, such as an aging population, rising prevalence of chronic disease, and continuous development of drugs and medical devices continue to make the healthcare sector an attractive investment. Although corporate deal value in healthcare was not at its ultimate high point, the average annual activity over the past four years in the United States has been nearly double the level of the previous four years and is reshaping the industry.
Disruptive market forces have affected the sector and we are now starting to see the effects of some of these trends. Bain & Company lists 5 forces that have affected the healthcare sector:
- The Amazon Effect: Amazon announced a partnership in January 2018 with JPMorgan Chase and Berkshire Hathaway to deliver healthcare to their employees and plans to grow its medical supplies business.
- The Digital Revolution: Healthcare companies are recognizing the impact of technology in the industry. To learn more about how technology acts as a driver of M&A, look to our post from earlier this month.
- Regulatory Change: Major economies are experiencing regulatory changes which directly affects healthcare industry.
- Consumerism: Consumers can pick among a variety of delivery models across healthcare channels.
- Personalized Medicine: Investors are looking at companies that are developing personalized treatments, patient testing for biomarkers, and ways to integrate and analyze patient data.
In addition to these five disruptors, Bain & Company expects three additional forces to impact deal-making in 2018: evolving laws and regulations, innovation, and the changing nature of total shareholder return. Competitive forces and increasing payer clout affecting bio-pharmaceutical and medtech markets has also driven change in the health care services space according to a report by EY. As we reported on January 31, 2018, EY forecasted possible M&A trends in the life sciences sector while newly implemented policies, such as the US tax reform, growth in emerging markets, and a fragmented biopharmaceutical market, suggested that a more active year of life sciences M&A deals is on the horizon.
Given the ubiquity of these forces, what does this mean for the Canadian M&A market? Is Canada going to enjoy the same increased M&A activity as its southern neighbour? Although Canada experienced a surge of M&A in 2017, which was predicted as likely continue into 2018, healthcare M&A is not expected to be a leading sector for increases in M&A activity in the 2018 year. According to survey responses in Mergermarket’s 2018 report, healthcare was sixth on the list of sectors expected for US buyers to target in Canada in 2018. In regard to sectors in Canada expected to see the biggest increases in M&A activity in 2018, healthcare was tied for third (inbound) and sixth (domestic). According to the Canadian M&A Roundup of Q1 2018, Canada has slowed down relative to Q1 2017 and the total value of deals for domestic and cross-border fell from $62 billion to $27 billion. The healthcare sector only accounted for 7.7% of the volume of M&A by industry in Q1 2018, falling behind the three leading sectors so far: real estate (37.2%), energy and power (14%), and high technology (10%).
The author would like to thank Justine Smith, Articling Student, for her assistance in preparing this legal update.
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