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April 23, 2015
Are life sciences execs saying we should expect more M&A?
By: Arda Ural

From Accenture Strategy for Life Sciences

M&A activity remains at an all-time high as pharma, biotech and medical device companies optimize their product portfolios and reinvigorate R&D pipelines.

Last year marked a high point for merger and acquisition (M&A) activity in the industry. According to the Thomson Reuters Full Year 2014 Mergers & Acquisitions Review, there were more than $390 billion in transactions—a figure that dwarfs transaction volumes from recent years globally.

Easy access to capital, strong cash positions and a positive economic outlook created an environment for pharma executives to accelerate their M&A activities. In part, this has driven biotech valuations to unprecedented levels. According to the Thomson Reuters report, the average worldwide transaction value/EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) multiple was 18.4 compared to an average of 14.2 across all industries.

Unlike in mergers of the past, today’s deal rationale is not driven primarily by cost take outs through achieving economies of scale. Instead, the deals appear to be motivated by:

  • Expanding product portfolios to areas of specialty medicine—especially oncology, anti-infectives, anti-virals and rare diseases.

  • Continuing to grow existing lines of business.

  • Divesting non-core business to help sharpen the business focus on areas of accretive growth.

    Over the last 12 months, Accenture tracked earnings calls of approximately 30 leading global pharma, biotech and medical technology companies that are publicly traded to determine whether the company executives specifically mentioned “an interest in engaging M&A strategy” at the earnings call. Subsequently, we followed up to see whether or not the company actually engaged in any acquisitions greater than $1 billion over the following three to six months. The tables below summarize the results.

Initial Interest in M&A

Announcement Period 
 Number of Companies Surveyed  
  Interested in M&A  
 Apr ’14

 Nov ’14

 Mar ’15


Six Month Follow Up

     Follow up Period         

  Announced an Acquisition  
         >$ 1 billion 

Apr ’14 – Oct ’14
Nov ’14 - Feb ’15

Clearly, companies that indicated an interest in M&A meant business. Over the last six months, almost two-thirds of leading life sciences companies indicated an interest in M&A as a growth strategy—this rate is significantly higher than 12 months ago when only one in five companies made a public statement of interest in M&A. And in the follow up period, 70-83 percent of companies subsequently made a public announcement about their intentions to engage in M&A. In the March 2015 earnings call, there was a slight drop from 65 percent to 58 percent in the number of companies who said they remain interested in M&A.

While we don’t have a crystal ball, these findings and our industry experience suggest:

  • The macro business environment still offers a favorable set of business conditions, with continuing quantitative easing policies and easy access to capital, at least through the end of the year, to encourage executives to continue looking at inorganic growth as a strategic vehicle to optimize product portfolios.

  • Life sciences companies continue to generate significant amounts of cash overseas and are hesitant to incur taxes to repatriate these reserves. With the strengthening US dollar, therapeutic assets outside of the US are becoming increasingly attractive, leading life sciences C-suites to consider overseas acquisitions.

  • The US government’s negative reaction to the tax-inversion-motivated AbbVie/Shire transaction indicates that we might not see similar deals in the future, but it has not slowed the M&A train.

  • Anecdotally, our client dialogues suggest that smaller specialty companies, not captured in our analysis here, are also exploring bolt-on deals, especially with an appetite for de-risked therapeutic assets in late-stage development or in-market products that can benefit from an at-scale commercial infrastructure to realize untapped growth.

    After the big volumes of transactions in 2014 and the first several months of 2015, it seems likely that for the rest of 2015 at least, life sciences executives will continue to take advantage of current business conditions to invest in mergers and acquisitions at a similar rate.

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