Isabel Pavia/Momento via Getty Images
Corporate and private equity players expect increased M&A activity in the healthcare and life sciences sectors this year, resulting in higher valuations, according to a recent KPMG survey.
In its 2024 Healthcare and Life Sciences Investment Outlook report, KPMG said that 61% of respondents expect more deals in 2024, with only 9% expecting fewer. 50% said they see an increase in deal ratings this year, with only 30% expecting them to decrease, compared to 48% who expect them to decrease in 2023.
“We believe this disparity in valuation viewpoints makes sense as there certainly appears to be a market for biomodal arrangements where highly competitive targets deserve higher valuations than targets where bidding wars have not materialized,” he said. KPMG stated in its report.
Of those surveyed, 31% said their company expects to increase M&A activity by less than 10% this year, with 22% expecting an increase of 10% to 20% and another 6% expecting expects an increase of more than 20%.
As for unfavorable factors, respondents cited inflation and rising rates as the No. 1 factor. 1 expected to impact deal activity this year, followed by competition for a limited number of innovative or high-value targets, expected effects on the economy, domestic pressures and the pandemic. related travel restrictions.
Lack of available capital was least of a concern, ranking sixth, followed by concerns over new antitrust policies and high valuations.
Mergers and acquisitions in the life sciences and healthcare sectors have declined substantially since 2021, which saw a total of 2,719 deals. That number dropped to 2,134 in 2022 and 1,776 in the period between January 1 and December 10, 2023. Of those 1,776 deals, 919 were in the healthcare sector and 857 were in the life sciences sector.
Also of note is that trade volume has declined significantly since reaching a high of 744 in Q4 2021, falling to a low of 369 in Q4 2023, as of December 10.
The volume of strategic investments in life sciences is also declining, from a high of 919 in 2021 to 778 in 2022 and 662 in the period between January 1 and December 10, 2023. Of the 2023 deals, 189 were in medical devices , 143 in pharmaceutical services, 167 in diagnostic and laboratory services and 163 in biopharmaceuticals.
Looking at the biopharmaceutical sector, KPMG said that “a more assertive FTC, the impact of the Inflation Reduction Act and the potential threat of royalties could have a profound effect on the sector.”
“If policymakers were not extremely careful about the degree to which these policies are implemented, the current ecosystem that fuels innovation could be dramatically disrupted, which would impact the business market,” the firm added.
Regarding medical devices, KPMG believes that 2024 will see a number of deals focused on robotics, artificial intelligence, machine learning and IOT. Mergers and acquisitions in other industries may also recover to 2023 levels as elective surgery volumes recover from pandemic lows.
Strategic healthcare investments, meanwhile, are growing, rising from 687 investments in 2021 to 475 in 2022 before rising to 566 in the 2023 period ending Dec. 10. For 2023, 225 investments were in the physician group sector, 185 in the healthcare IT/digital health sector, 99 in the health systems sector and 57 in the payer segment.
KPMG noted that strategic buyers “took over from financial investors” in the medical practice segment last year, with more deals locked in the third and fourth quarters of 2023 than even in 2021.
“These buyers tell us they are now looking for higher quality assets with stronger management teams,” KPMG commented.
The company also noted that major players in the payer segment have been increasingly active as of late.
“The value of scale, including the promise of improved operational efficiency, will continue to drive many deals in this space,” KPMG added.