Dealmaking within the pharma, medical and biotech sector continued from its promising start to the year. Following robust activity throughout the year, Q1-Q3 deal value has already overtaken all annual totals on record except 2019, with three months of dealmaking left to record for the year.
Interest in deals within the top end of the market has reached a new high. A total of 16 deals were announced in Q1-Q3 2021 with a price tag of over US$5 billion—the highest number on record. To put this into perspective, there were a total of nine deals announced within this price bracket throughout the whole of 2020. If appetite for big-ticket deals in the final quarter remains, annual deal value targeting the sector could reach an all-time high.
Volume built on the sustained activity seen in recent years, with a total of 1,723 announced deals increasing 35% year-on-year. Alongside value, this figure also looks on track to reach a new annual record, reflecting a healthy appetite for deals in the market.
US continues to dominate
US firms continued to be the most hotly contested targets for dealmaking by a large margin, attracting eight of the top ten deals of the year. A total of 732 deals valued at US$262.9 billion targeted US firms in the first three quarters, already overtaking 2020’s annual total, and on track to set a new record in 2021.
The largest transaction of the year so far was the US$34 billion sale of Medline to a PE consortium led by Carlyle. The buyout of Medline, one of the largest medical supply manufacturers in the US, was reported to be the largest leveraged buyout since the financial crisis.
Whereas in the pre-COVID years of 2018 and 2019, healthcare M&A was characterized by a series of mega-mergers between big pharma firms, such as Bristol-Myers Squibb’s US$87.8 billion acquisition of Celgene and AbbVie’s US$86.3 billion tie-up with Allergan, so far in 2021, suppliers and other service providers to the healthcare industry have dominated dealmaking.
CROs take center stage
Contract research organizations (CROs), which help pharma firms conduct clinical trials, have also been a significant catalyst of dealmaking within the sector. The largest deal targeting a CRO in 2021 was Thermo Fisher Scientific’s US$21 billion acquisition of US-based PPD. The deals will enable Thermo Fisher, a manufacturer of analytical instruments, to expand its ‘one-stop-shop’ of services for running clinical trials.
Another purchase of a CRO to make the top five deals of the year was Dublin-based CRO ICON’s US$12.1 takeover of PRA Health Sciences. Through the merger, ICON aims to strengthen its consulting, clinical and commercial services portfolio and digital healthcare capabilities.
In a further show of the current strong market appetite for CROs, global buyout firms EQT Partners AB and Goldman Sachs Private Equity agreed to acquire PAREXEL International Corporation from Pamplona Capital Management in a deal valued at US$8.5 billion.
The global CRO market has undergone major changes since the outbreak of COVID-19, prompted by a surge in demand for clinical trials to develop COVID-19 vaccines and treatments.
According to the Korea Biotechnology Industry Organization (KoreaBIO), the global CRO market grew 11.2% in 2020, with the top 10 leading shares gaining a market share of over 50 percent. This shift will continue to drive dealmaking in the healthcare sector as companies look to bulk up their capabilities in this area.
SPACs target biotech
SPAC deals continue to be an attractive route for firms looking to find a fast route to public markets, with the high-growth biotech or life sciences sector keenly targeted by “blank check” firms.
The largest deal of the year so far was US-listed SPAC Soaring Eagle Acquisition Corp’s merger with US cell programming firm Ginkgo Bioworks, in a deal valued at US$15 billion. Ginkgo supported a number of COVID-19 response efforts, including vaccine manufacturing optimization and antibody screening—key growth markets within the life sciences industry.
The transaction included an additional US$775 million in PIPE (private investment in public equity) investment from a group of investors which included Berkshire Partners and T. Rowe Price Associates.
Outlook
The healthcare M&A landscape has shifted dramatically over the past few years. While in the years before the COVID era the focus was on consolidation among big pharma, dealmakers in recent years have sharpened their focus on medical suppliers, biotech firms and CROs. The COVID pandemic has accelerated the shift towards smaller transactions, as demand for clinical trials soared and the global race to develop a vaccine and testing capabilities required monumental investment.
Such powerful underlying drivers mean that global healthcare M&A shows no sign of slowing down as dealmakers look ahead to 2022.