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Healthcare and pharmaceuticals

Healthcare and pharmaceuticals

The healthcare and pharmaceuticals sector saw the highest activity levels for 10 years in 2016.

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It has been a robust year for deals in the healthcare and pharmaceuticals sector. Both deal volumes and deal values were at a similar level to 2015, which saw the highest activity levels for 10 years.

The statistics were boosted by the massive US$12.6 billion acquisition by Boehringer Ingelheim of Sanofi’s animal health business, along with the Mylan and Helios Kliniken deals of US$7.2 billion and US$6.4 billion respectively. Overall, however, there have been fewer blockbuster deals compared to previous years (and to other sectors).

“The level of transactions is likely to have been influenced by forthcoming changes to the rules tax inversion deals in the United States,” explains Andrew Nicholson, Global Head of Healthcare M&A.

“The changes will make it less attractive for corporates to use M&A transactions to drive tax efficiencies, with the result that corporates may have been keen to complete deals before the full effect of changes is felt.”

The same five countries account for the highest number of both outgoing and incoming deals, and at similar levels.

The picture is less consistent in terms of deal values, however.

“There has been a huge amount of spend between the United States, UK and China, which is as would be expected, with China in particular accounting for a larger number of smaller value deals.

“Chinese buyers are keen to acquire IP from Western companies that they can use to drive growth at home, so it’s no surprise to see Chinese corporates so active in originating transactions. In the United States, slower domestic growth is driving corporates to look overseas to increase earnings, whether that be Europe or further afield.”

“Japan and Switzerland have also been active in seeking growth outside their home markets via M&A. It is common for Japanese corporates to buy overseas. Switzerland, too, has some big pharmaceutical companies that, although they might not do a lot of deals, tend to be quite big transactions,” says Nicholson.

Looking ahead to 2017, a sharp decline in announced deals during 2016 would seem to suggest a similar decline in completed deals in the healthcare and pharmaceutical sector over the coming year, in terms of both volumes and value. However, the fundamentals of the sector remain strong, and while deal levels may not match 2015, Nicholson expects them to remain on a par with preceding years.

“The changes around tax inversion may kill a few potential mega-mergers, but in terms of day-to-day acquisitions, debt is still cheap, cashflow is good and P/E ratios are strong, so corporates are still likely to see M&A as an attractive option to grow their earnings,” he says.

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