Healthcare hits 2-yr M&A high, bucking trend

According to data released by LSEG Deals Intelligence, the healthcare sector saw a 35% increase on last year’s deals, reaching $174.6 billion in the first half of 2023 – a two-year high that bucks the trend at a time when global dealmaking fell 38% to a post-pandemic low.

Indeed, healthcare dealmaking accounts for 14% of global M&A, although the number of deals is down 12% compared to this time last year. And M&A activity within the biotechnology, healthcare equipment, and health services sectors accounts for 85% of overall dealmaking within the sector as a whole.

Pfizer’s $42.1 billion acquisition of Seagen was the largest deal announced this year, while CVS Health’s $10.7 billion acquisition of Oak Street Health and Merck’s $10.3 billion purchase of Prometheus Biosciences were also in the top three. Merck’s deal was preceded by GSK’s decision to acquire Bellus Health for approximately $2 billion.

It was also within healthcare that the highest number of companies went from small cap to large cap in the FTSE Russell US Indexes Reconstitution in June, with six healthcare companies among the 22 companies moving up from the Russell 2000 to the Russell 1000.

Matt Toole, Director at LSEG Deals Intelligence, commented that “[h]uge amounts of cash reserves amassed during the coronavirus pandemic have been deployed to fuel growth and boost investor confidence.”

He caveated, however that, “[m]ore broadly, economic pressures have continued to dampen the global dealmaking environment, with fears of recession and rising interest rates biting.”

This can be seen in the number of deals in worldwide dealmaking having decreased 11% so far this year – a three-year low. Nonetheless, second quarter-to-date 2023 M&A activity increased 23% compared to the first quarter, which had ranked as the slowest first quarter since the first quarter of a decade ago in 2013.

Certainly, the pharma industry had also been seeing a slowdown in major acquisitions. Now, as these investments become more regular, it is thought that the industry could enter into another period of consolidation and expansion within their chosen niches.

Meanwhile, in May 2023, CVS Health decided to shut down its clinical trials business, just two years after launching it in the midst of the COVID-19 pandemic. Its acquisition of primary care provider Oak Street Health and home care company Signify Health for $8 billion resulted in a downgrade of its earnings forecasts for the year, which likely had a bearing on its plans for the clinical unit, the phased exit from which is expected by 31st December 2024.

Image by geralt, sourced from Pixabay.