Corporate Financing Analysis - Healthcare Dealmaking High And Still Rising - 24 APR 2017

The corporate raiders are at the gates of the global healthcare sector. With healthcare sector spending forecasted to steadily increase in key markets, emerging technologies changing the face of the industry and opening up new opportunities for firms to take the lead in a range of sub-sectors from biotech to drug discovery and with the broader industry having proven its resilience to recent bouts of market volatility, it is not surprising that within the thawing out of activity in the global M&A arena the healthcare and pharmaceuticals sector has come charging out of the blocks. According to data provider Dealogic, global announced healthcare M&A activity totaled USD100.9bn in Q117, up 62% y-o-y from the first quarter of Q116 when USD62.4bn in announced deals were recorded. While deal value was taking a leap higher, we note that deal volume was heading in the opposite direction, declining from the 747 recorded in Q116 to a level of 720 in the most recent quarter - a trend that indicates that the average size of deals have been getting larger and serves as a sure sign that strategic acquirers are growing in confidence towards the sector's growth prospects. One of these bumper deals was the USD31.4bn takeover of Swiss biotech firm Actelion led by American multinational firm Johnson & Johnson ( J&J), which also ranked as both the third largest European-targeted bid by a US firm on record and the sixth largest cross-border healthcare deal globally of all time.

A 'Purple Patch' For Bookrunners

In our view, the boost in announced deal value during Q117 was impressive, given that it was just 26% shy of the record haul for first-quarter deals set back during the first quarter of 2009, when announced takeover activity in the sector soared to a combined USD137.2bn. Zooming in on where the deals are being made across the sector, Dealogic data show that the pharmaceuticals sub-sector served as the target for a 61% share of Q117 deals (by deal value), almost doubling the 36% share of the market that it attracted during the first quarter of 2016. After pharma, the sub-sector that attracted the second largest market share of announced dealmaking in Q117 was instruments, which claimed a 11% share. All combined, the three month period through to March 31 2017 has been a 'purple patch' for the bookrunners working on deals and is likely to continue to be a good payday for them going forward. In this vein, Wall Street giant Bank of America Merrill Lynch ( BAML) has come out on top and currently leads the global healthcare M&A activity rankings for Q117, having worked on deals worth a combined Dealogic data show that Lazard currently sits in second spot on the leaderboard with a workload worth USD38.3bn, while Citi ranks in third spot, having helped USD33.4bn in deals across the finishing line.

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US Healthcare Spending As Percentage Of GDP
e/f = BMI estimate/forecast. Source: BMI, WHO

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