Aging populations and innovations in biotechnology are among several trends indicating stronger M&A activity in the pharma and healthcare sectors, showing a pick up from US$ 305 billion in 2016, to a peak of US$ 445 billion by 2018, according to a new report by Baker McKenzie.
The Firm's second Global Transactions Report, in association with Oxford Economics, shows a clear shift from investor apprehension to appetite in the coming years, with several of the industries hit hardest by the M&A slowdown in 2016 primed for recovery. It predicts that healthcare and pharma will be among those sectors set to experience the strongest turnarounds.
Pharma and healthcare were among the sectors hit hardest by the M&A slowdown in 2016. However despite a drop in value from US$320 billion in 2015, pharma deals reached US$220 billion in 2016 — the third highest year on record. Healthcare deals were also hit, totalling US$85 billion in 2016, in comparison to US$175 billion in 2015.
The leading global law firm is predicting a rise in value, as suggested by a number of trends.
Chair of Baker McKenzie's Global Healthcare group Ben McLaughlin explains,
As populations age in emerging and advanced economies, we expect public and private healthcare spending to rise faster than other areas of spending. Biotech innovations will also open new areas for medical breakthrough, generating attractive high-risk, high-growth opportunities for investors.
At the same time, the combination of aging populations and fiscal pressure will motivate governments to look for efficiencies in public health systems. This is likely to increase government outsourcing, creating growth opportunities for private health providers, and the potential for efficiency-boosting mergers.
While the Firm is still mindful of the uncertainty a Trump Presidency and Brexit could bring to the industry, it remains cautiously optimistic, as Paul Rawlinson, Baker McKenzie's global chair explains,
We are clearly still in volatile times but deal-making is there to be done. Strong corporate balance sheets, cheap finance and moderate growth across markets and key sectors all point to an improving M&A run-rate later in 2017, after a cautious first quarter, and a significant uptick in 2018. The caveat is we need a benign Trump on trade, and a soft-ish Brexit. Will we get that? Let's see.
Baker McKenzie has also predicted a rise in IPO transactions in 2017. Koen Vanhaerents, Global Chair of Baker McKenzie's Capital Markets group, mentioned in the Firm's 2016 IPO Index that,
Healthcare was very much in the spotlight in 2016, with deals stifled by the threat of US government intervention on drug pricing and controls, increased financial risks and the presidential election, causing the industry to see a 39% decrease in listings. The outlook has now changed, and threats of regulatory intervention receded in the final quarter, which may set the scene for a further rise in biotech IPOs in 2017.Baker McKenzie has also predicted a rise in IPO transactions in 2017.