Good Health for M&A
2015 was recording breaking year for M&A healthcare, with over 1,400 transactions taking place and amounting to roughly £389 billion globally. We take a look at the recent surge in healthcare acquisitions and whether they are set to last.
With the recent report that Abbott Laboratories acquired St Jude Medical for £17.28 billion, the Illinois-based healthcare company was following a trend of healthcare acquisitions, reversing the recent downturn within the healthcare M&A market which has seen revenue drop by over 25 per cent from last year.
The Abbott/St Jude news came on the back of two other recent high-profile announcements – Sanofi’s £6.43 billion bid for Medivation, and AbbVie’s acquisition of Stemcentrx for £7.05 billion, not to mention the record-breaking deal between Pfizer and Allergen that took place last year, which was reported to be worth over £110 billion.
The reasons for the upsurge in healthcare M&A activity are fourfold:
1) Cheaper borrowing: interest rates in both the USA and UK remain at historically low levels despite the US Federal Reserve’s recent rate hike (the first in seven years). Corporate borrowing costs, therefore, are unlikely to increase or have an impact on M&A activity.
2) Boardroom confidence: 2015 was a record year for M&A as a whole, not just in healthcare. Such a successful year, led to rises in stock prices for both acquirers and targets as well as bringing increased confidence in the ability of companies, to pursue attractive and relevant organisations which will further enhance their value and reputation.
3) Peer pressure: when a company’s competitors are actively engaged in mergers and acquisitions, many organisations feel under pressure to keep up in order to boost revenue, reduce costs, grow market share and even avoid being the target of a takeover by a larger competitor.
4) Increasing profitability: the worldwide economic downturn in recent years has acted as a catalyst for companies to pursue M&A activity in order to achieve greater growth than would otherwise be possible, given the prevailing economic conditions. M&A has become a strategy whereby businesses can merge to achieve a reduction in costs or even to maintain fine margins. M&A has also been seen by some as a quick fix alternative to organic growth which would necessitate increased expense.
2016 is set to be another record-breaking year for M&A activity, particularly within the healthcare sector, as new technologies push forward medical boundaries further to meet expectations of populations across the world. Inward investment in this particular sector shows no sign of diminishing in the next twelve months.
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