Ernst & Young today released its 2021 EY M&A Firepower report, revealing a staggering dip in mergers and acquisitions (M&A) activity in medtech.
Life sciences M&A activity totaled $159 billion in 2020, according to the report — a plunge to nearly half of the 2019 total of $306 billion, representing one of the lowest levels EY has observed since 2014.
Only AstraZeneca’s $39 billion acquisition of Alexion Pharmaceuticals qualified as a “megadeal” while it made up about a quarter of the total M&A activity in the space.
EY addressed the obvious difficulties of making deals during the COVID-19 pandemic, both financially and logistically (virtual negotiations, etc.), and also noted that persistently high valuations for biopharma and medtech targets kept would-be buyers away from making purchases that were already made difficult by the pandemic.
Biopharma acquirers refocused on alliances and smaller deals in high-priority therapeutic areas, EY said, while medtech companies saw revenue slowdowns as elective procedures were either deferred or canceled throughout the pandemic.
EY says that, despite market volatility, life sciences companies ended the year with a high capacity to do M&A based on balance sheets, or “firepower” as the major accounting firm calls it. The report found that biopharma deployed just 12% of its firepower in 2020, compared to 20% in 2019, while medtech’s firepower for deals expanded by 41% in 2020 (an all-time best) but just 7% was used, compared to 10% in the previous year.
“Life sciences M&A activity is beginning to rebound but will not reach the heights of 2019. However, multiple factors point to an active deal-making year in 2021,” EY global health sciences & wellness strategy & transactions leader Peter Behner said in a news release. “For biopharmas, therapeutic focus, especially in fragmented areas like oncology or immunology, remains an important long-term driver for deals as the need to reduce commercial complexity grows.
“Moreover, ample liquidity and private equity buyers create opportunities for divestments and further therapeutic depth. Growth gaps could also create new urgency for deals depending on clinical trial delays or sales slow-downs caused by the pandemic.”
As a result of the trends observed in 2020, EY expects 2021 to be an active year for life sciences M&A, with biopharmas set to focus on smaller acquisitions and partnerships to mitigate financial risks, while medtech companies could spend more aggressively to close growth gaps.
“We believe 2020 was an impressive year for medtech, in spite of procedures getting postponed, as M&A firepower approached a historical high for the industry of nearly US$500 billion,” EY life sciences partner John Babbitt said. “However, a recently active and frothy IPO market and special purpose acquisition corporation interest has complicated recent deal activity. As a vaccine is deployed and more predictability returns to the medtech space, it could set up 2021 to be a very active M&A market for the sector.”
Leave a Reply
You must be logged in to post a comment.