UK Pharma ready to pursue deals and acquisitions despite Brexit uncertainty

EY estimates the pharmaceutical industry will pursue M&A activity in 2019 with bolt on acquisitions and divestments of non-core assets




According to EY’s 19th Capital Confidence Barometer, the UK Pharmaceutical industry is moving forward with its M&A activity despite continuing uncertainty on the post-Brexit state of affairs.

The biannual survey of more than 2,600 executives across 45 countries found that 67% of UK life science execs had a stable or positive outlook on the impact of Brexit on investment and acquisition activity.

67% of UK life science execs have a stable or positive outlook on the impact of Brexit on investment and acquisition activity

However, globally 51% of the surveyed executives believe that Brexit will negatively impact investments and acquisitions outside the UK and EU. The executives also note that the ability to recruit and retain key talent will be impacted.

Read More: Brexit and the search for talent

Matt Bartell, the UK Life Sciences TAS Leader for EY commented that “it’s no surprise that UK execs are more confident on Brexit compared with their global counterparts. Clearly those in the life sciences industry have done their homework and are ahead of many others in ensuring they are prepared to weather the Brexit storm and are able to continue focusing efforts on driving growth through M&A.”

The report states that the global life sciences industry is on track to achieve US $200 billion in deals in 2018, but this is contrasted with only 49% of respondents believing that the sector is improving. 48% of respondents have confirmed though that they intend to pursue M&A within the next 12 months.

 

M&A firepower at an all time high

Looking to 2019, Bartell said “the combined strength of companies’ balance sheets, or firepower, is at an all time high. This could fuel larger M&A than what we have seen recently.” He did note though that “[EY} expects deal making to continue more in the form of bolt on acquisitions and divestments in areas of non-core asset sales rather than mega deals.”

High valuations and fragmentation in key therapeutic areas will be crucial. It is expected that the private equity industry will also have a keen appetite for medtech and services businesses which support biopharma and speciality clinical laboratories. 

Deal making is expected to continue in the form of bolt on acquisitions and divestments of non-core assets rather than mega deals

Bartell believes that “in 2018, we are seeing a ‘less is more’ attitude, with bolt-on acquisitions being used to create scale and divestitures to secure value from non-core assets”.

The study also showed that life sciences companies are increasingly relying on portfolio optimization to improve performance and free up capital for reinvestment. 59% of life sciences respondents confirmed that they are reviewing their portfolios more frequently than once per year, an increase of 29% from the figures from last year’s survey.

Related: Cutting edge biotech is spurring growth in the infectious diseases market

 

Global boom for M&A in Pharma set to continue

Globally, it is predicted that 2019 will continue to be another active year for life sciences deal-making, particularly in the biotech, payer, outsourced services and healthcare IT arenas.

Speaking on a panel at the Forbes Healthcare Summit, Omid Ahdieh, Head of Healthcare Services Investment Banking at Wells Fargo Securities, said “it’s probably the most exciting time that I’ve seen in healthcare deal-making in general, just given all the new innovative technologies out there and the amount of capital in the marketplace.”

At the same event, Cheri Mowrey, Head of Healthcare Services Investment Banking at Morgan Stanley, predicted that private equity players will likely be investing billions more into the larger healthcare space, which should keep valuations stable in the near term future.

"The most exciting time that I've seen in healthcare deal-making"

Both private equity and strategic buyers are keeping their attention on healthcare deals, in particular healthcare IT. Payer services are also touted to receive both interest and investment in 2019.

Thomas Sheehan, Head of Global Healthcare Investment Banking at Bank of America Merrill Lynch, believes that the offloading of non-core assets, a prominent trend among big pharma over the last few years, will also be a major catalyst for deal-making in 2019.

 

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