Despite the absence of megadeals, M&A in the sector climbed from 2020 levels thanks in part to strong PE and SPAC activity

Healthcare and pharmaceutical deals continued at a robust pace through 2021, registering the third-highest value of any sector, behind technology and industrials, and with values and volumes both increasing year-on-year. In 2021, deal value rose to US$288.9 billion, a 38 percent increase on 2020; the number of deals rose to 976, a 25 percent rise year-on-year.

The kinds of blockbuster deals seen in 2018-2019, such as Takeda’s US$78.2 billion acquisition of Shire, were largely absent, as large corporates steered clear of a more aggressive antitrust environment under the Biden administration and continued to hone their portfolios to take advantage of what was undoubtedly a seller's market.

Cash to spend

Flush with dry powder and eyeing countercyclical opportunities, private equity continues to play a strong role in the market—the largest deal in the sector in 2021 was struck by a Carlyle-led consortium for Medline in a US$34 billion transaction.

Healthcare SPAC mergers have also remained in focus, as earlier stage, technology-focused businesses boosted by pandemic-related trends, such as telemedicine and data-driven diagnostic devices and discovery tools, begin to disrupt more traditional healthcare models. With the surge in SPAC IPOs over the past 18 months, these pre-revenue companies will attract further sponsor attention as technology convergence in the healthcare sector continues apace. We also expect these merger transactions to accelerate over the coming months, as sponsors and companies seek to get ahead of any potential change in regulation, given signals emanating from the SEC around SPACs.

Greater data, greater scrutiny

While incumbents will remain keen to ensure they stay up-to-speed with digitalization, big data and the application of machine learning and artificial intelligence across the healthcare and pharma spectrum, cross-border transactions in this space could face increased scrutiny. CFIUS in the US, the Data Security and Personal Information Protection Laws in China and similar legislation in some key European markets, such as Germany, are raising regulatory hurdles for dealmakers looking at digital healthcare M&A beyond domestic borders.

However, we expect there to be good M&A appetite among companies that have generated strong cash flows from product mixes that benefit from the pandemic. While these deals will likely retain a focus on core business lines, we see potential for these businesses to broaden and fill their portfolios. Pfizer’s announcement in late 2021 of its US$6.7 billion deal to acquire Arena Pharmaceuticals could be the shape of things to come, as the COVID-19 vaccine and antiviral pill manufacturer seeks to deploy cash from what it forecasts to be record revenues for the year.

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