Healthcare investors expect an increase in M&A activity

The healthcare sector is positioned for a significant increase in merger and acquisition activity this year, but deal drivers will vary considerably across individual industry subsectors, according to a new survey.

The survey, based on interviews with more than 75 U.S. healthcare investors, provides insight into emerging trends in M&A activity in specific segments of the healthcare sector, including biotechnology and pharmaceuticals, medical devices, healthcare providers and payers and healthcare services. It was published by mergermarket in association with Epstein Becker & Green, P.C., a New York-based national law firm focused on serving the needs of the healthcare industry, and Rodman & Renshaw LLC

For healthcare payers and providers, as well as healthcare services companies, government reform initiatives will be the most significant driver of M&A activity, according to 65 percent and 59 percent of respondents, respectively.

Meanwhile, a desire for new products and technologies will outweigh healthcare reform as the primary driver of M&A activity among biotechnology and pharmaceutical companies and medical device manufacturers and suppliers, according to 46 percent and 33 percent of respondents, respectively.

This indicates that financial buyers are expected to be the most active acquirers in the healthcare services industry, which covers healthcare IT and data management, while strategic buyers will be more prominent in the biotechnology and pharmaceutical market following on major large-cap consolidation over the past year.

Sixty-one percent of survey respondents predict an increase in the volume of PIPE transactions in the biotechnology and pharmaceutical subsector, where 51 percent of respondents said investors will focus on companies with strong product pipelines.

When investing abroad, 41 percent of respondents say healthcare investors in the United States will focus their attention on China this year, due largely to its expanding middle class and its attractive pharmaceutical market.

An additional 30 percent of respondents expect western Europe to see the most interest from U.S.-based healthcare investors.

Additional findings include:

  • 56 percent of respondents expect bridging the gap between buyer and seller expectations to be the most challenging part of the M&A process this year.
  • 40 percent of respondents believe healthcare companies' inability to access capital in the current market will drive PIPE deal volume.
  • 43 percent of respondents expect equity to be the most prominent financing source for healthcare M&A transactions over the next 12 months.

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