European healthcare M&A, especially the large-cap deal segment, is fighting fit despite the macro environment and a poor debt financing market.
Healthcare deals to a total value of EUR 23.7bn have been announced in Europe, the Middle East and Africa (EMEA) this year to date (YTD). Although this is only up 0.6% over the same period last year, it’s still positively flourishing in comparison with EMEA M&A across all sectors, which is down 56% YTD.
At a time when very few large-cap deals are being signed, there is a EUR 5.8bn transaction in the works – a potential offer for Dechra Pharmaceuticals [LON:DPH] from EQT [STO:EQT]. EQT's deadline to finalize its offer has been extended to 2 June, as reported.
A restructuring deal for scandal-hit care home group Orpea [EPA:ORP] from a consortium led by CDC came in at EUR 5bn.
Dechra and Orpea were second and third respectively on the top 20 list of deals in EMEA across all sectors.
Other recent deals that are a testament to a sprightly healthcare sector are Synlab [ETR:SYAB] / Cinven (EUR 2.7bn), Polyplus Transfection / Sartorius Stedim Biotech [EPA:DIM] (EUR 2.4bn) and Diaverum / M42 (EUR 1.8bn) – these are number 12, 15 and 17 respectively on the EMEA top 20.
Healthcare accounts for a vigorous 13.7% of total EMEA deal value so far this year. If this holds up, it will constitute the highest share of M&A since 2018. The 2022 figure was 5.4%.
It’s alive! – Financing for large-cap PE deals is possible
It is interesting to note that private equity (PE) firms that buy healthcare companies are bucking the trend of agonizing deal financing. The old chestnut about healthcare being a crisis-resilient sector seems to assert itself.
“There are lenders willing to lend for the right deals. Healthcare is seen as relatively safe, always of interest, and fundamental, no matter what is going on in the world”, said David Dowling, counsel at Ropes & Gray who specialises in life sciences and healthcare M&A.
Even more promising is the prospect of strategic acquirers doing big deals in the healthcare space – this looks downright wholesome, given big pharma has a lot of financial firepower. “Some had recent divestments and spinouts, and there is a lot of cash on balance sheets to be deployed”, Dowling said.
Cue Pfizer’s [NYSE:PFE] USD 43bn acquisition of Seagen [NASDAQ:SGEN] across the pond, to be financed through USD 31bn of new, long-term debt, plus via short-term financing and existing cash.
Biotech stocks have been particularly depressed post-pandemic, Dowling said. Some large, listed companies are seen as good value, which could lead to takeovers, he added.
Expect the unexpected
What’s next for big healthcare M&A?
Novartis [SWX:NOVN] is not only planning to spin off its generics business Sandoz, which could be a EUR 20bn-plus deal, as reported. There is also chatter about the Swiss pharma giant selling its ophthalmology and respiratory units. However, Novartis is also in a good position to make a large-scale acquisition, after exiting its Roche [SWX:RO] stake for USD 20.7bn in 2021, according to sector bankers. Novartis had cash and cash equivalents of USD 12bn on 31 March, as per its 1Q23 report.
Meanwhile, Viatris [NASDAQ:VTRS] has been working on a sale of its European consumer health assets, which could be worth EUR 3bn, as reported. Also, Bayer [ETR:BAYN] is under pressure from activist investors to split the company, which would put its pharma and consumer healthcare businesses into play.
There are plenty of moving parts in the consumer health segment, including Haleon [LON:HLN], which has been earmarked as a takeover candidate, a prediction recently fuelled by a report saying Pfizer will start selling down its stake shortly. Sanofi [EPA:SAN] has said it is considering options for its USD 30bn consumer health business – here, Haleon could emerge as a buyer, according to a report.
So, while M&A in general may insist that it’s not dead yet, healthcare dealmaking can claim to be in its prime.
