M&A Healthcare deals
The total annual value of M&A healthcare deals globally has reached record levels, totalling over US$ 550 billion. As it was in 2014, healthcare is the busiest M&A sector in the world.
According to Mergermarket, at US$3.82 trillion, the total value for announced M&A deals for 2015 so far, stands 4.3% higher than the previous all-time yearly high, set in 2007. M&A deals value for 2015 so far is 16.9% more than last year's total.
Five sectors have already reached their highest tallies this year with healthcare (pharma, medical & biotech) (US$554.3bn) leading the way. Second is consumer (US$463.6bn). Third is technology with US$386.5bn of deals announced this year. Business services (US$212.1bn), real estate (US$208.1bn), and defence (US$14.8bn) complete the top six.
By geography, values in both the US (US$1.79tn) and Asia-Pacific (US$813.6bn) exceeded previous years’ totals, with Europe (US$1.03tn) considerably below the 2007 total.
Medical Research Future Fund
The health sector should soon have access to one of the world's largest medical research funds. The Medical Research Future Fund ("MRFF" or "the Fund") is an A$20 billion fund aimed at providing large-scale and long-term financial support for medical research and innovation in Australia.
The Federal Government approved the creation of the Fund in August 2015. The Government has now launched the MRFF awareness campaign.
Bodies falling under the categories of medical research or medical innovation may apply for grants from the MRFF. The breadth of these categories means sectors such as medical physics or big data analytics may also have access to the Fund, reflecting the increasingly interdisciplinary modern approach to medical research. These may include medical research institutes, universities, corporations and Commonwealth entities. They will have to compete with the States and Territories, which can receive MRFF grants for their own medical projects such as medical research infrastructure development.
Foreign companies or foreign-owned Australian subsidiaries are not barred from accessing the MRFF. Bodies acting in partnership with foreign bodies are expressly allowed to receive grants. However, from a policy perspective, grants may be more likely given to domestic bodies given their direct link to Australia's health sector.
The Future Fund Board of Guardians will manage and invest funds within the MRFF.
The following bodies form the decision making process for awarding grants:
- An expert advisory board: this eight member board, led by the CEO of National Health and Medical Research Council, will develop the MRFF's strategies and priorities;
- The Health Minister: based on the advisory board's strategies and priorities, the Minister will devise programme-level funding proposals for Cabinet approval;
- The Finance Minister: following Cabinet approval and on request by the Health Minister, the Finance Minister will debit an amount from the MRFF.
New laws regulating foreign investment in Australia
Laws for foreign investment in Australian corporations and businesses have been amended with effect from 1 December 2015. The general rule is that “foreign persons” cannot make large investments in large Australian corporations and businesses unless they first obtain the approval of the Australian Foreign Investment Review Board ("FIRB").
Who is a foreign person?
- the definition now extends to foreign governments. “Foreign government investor" includes foreign governments and any corporation, trust or partnership in which a foreign government has a 20% interest or multiple foreign governments have an aggregate 40% interest; and
- a corporation (including an Australian corporation) is deemed to be a foreign person if at least 20% of its shares or voting power is held by a foreign person and its associates (substantial interest threshold). A corporation is also deemed to be a foreign person if at least 40% of its shares or voting power is held by multiple foreign persons and their associates.
Notifiable actions and significant actions
The new regime regulates two categories of transactions:
Notifiable actions – transactions which must be notified to the FIRB if they meet the monetary threshold:
- acquiring a substantial interest (i.e. a 20% interest) in an Australian entity;
- acquiring an interest in Australian land;
- acquiring a direct interest in an Australian agribusiness; or
- a foreign government investor acquiring a direct interest in an Australian entity or business or an interest in land.
Significant actions – transactions which are technically not required to be notified to FIRB, but the Treasurer has the power to block or unwind them if they meet the monetary threshold and are considered contrary to the national interest, unless they are notified and a statement of no objection is issued:
- acquiring an interest (which may be less than a substantial interest) in securities of an Australian entity, business or land;
- entering into certain agreements or altering the constituent documents of an Australian entity which enables a foreign person to control senior officers of the entity; or
- entering into or terminating significant agreements with an Australian business (i.e. agreements relating to using the business's assets or participating in its profits or management and control).
Except in the case of a foreign investor acquiring a direct interest in an agribusiness, an action in relation to an Australian entity or business only constitutes a "significant action" if it results in a change in control of the entity or business involving a foreign person. A change in control occurs if foreign persons begin to control an entity or business or there is a change in the foreign persons who control the entity or business.
For an action to be classified as a notifiable action or a significant action, the value of the Australian entity or business (other than agribusinesses) being acquired must be at least:
- A$1,094 million for investments by non-government investors from the USA, New Zealand, Chile, Japan and Korea (agreement country investors) in non-sensitive sectors;
- A$252 million for investments by agreement country investors in sensitive sectors;
- A$252 million for investments by other non-government foreign investors; and
- A$0 for investments by foreign government investors.
Transaction thresholds are indexed annually on 1 January.
For an investment in securities, these thresholds apply to the higher of the target entity's:
- total asset value (based on its most recent financial statements); and
- total issued securities value (based on the consideration payable for each security multiplied by the total issued securities).
For an investment in assets, the thresholds apply to the value of the consideration for the acquisition.
The healthcare industries are not considered sensitive sectors. Sensitive sectors remain largely the same, including media, telecommunications, transport, defence and military industries. They now also specifically include encryption and security technologies and communication systems, given heightened sensitivities about how these matters could impact Australia's national interest.
It is likely that non-government investors from other countries, such as China, will be treated as agreement country investors once further free trade agreements are agreed and ratified.
Importantly, the definition of "agreement country investors" remains confined to a corporation or entity incorporated or established in the relevant country. Therefore, even a wholly owned Australian subsidiary of a US company still does not qualify for the increased thresholds. This needs to be considered in structuring any acquisition vehicle if investors want to take advantage of the more favourable thresholds.