New signs of life: healthcare and life sciences M&A

February 2025  |  FEATURE | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

February 2025 Issue

Amid the turmoil caused by the coronavirus (COVID-19) pandemic, when business uncertainty was high and opportunities limited, some sectors, such as healthcare and life sciences, bucked the trend and saw an upswing in M&A activity.

As the pandemic slowly receded, however, M&A activity in the sector fell sharply, with healthcare and life sciences companies subsequently facing headwinds such as soaring interest rates, steep inflation, regulatory challenges, post-pandemic supply chain issues and market volatility.

While these factors persisted into 2024, there are signs that suggest a significant uptick in performance and activity could be on the horizon – with forecasted falls in interest rates across the US, UK and European Union one of a number of factors expected to drive deals.

“M&A activity in healthcare and life sciences reached dizzying heights through the pandemic in 2021,” recalls Fatema Orjela, a partner at McDermott Will & Emery UK LLP. “Although activity by value and volume has not been quite as lofty since, we should arguably be cautious about using 2021 as the benchmark given the special circumstances prevailing at that time.

“Post-pandemic, M&A activity has been in line with pre-pandemic levels, and despite inflationary pressures, a high interest rate environment, a tight credit market, geopolitical and economic uncertainty, regulatory challenges and labour shortages, the sector has remained resilient,” she continues. “There continues to be signs of upward momentum as sellers have navigated through the headwinds and higher quality assets are primed to come to market.”

According to Datasite, global healthcare and life sciences M&A increased in 2024 compared to 2023. For the first nine months of the year, sell-side deals, especially asset sales and mergers, are up by 1 percent, while buy-side deals have surged 15 percent in the same period. Value-based care, digital healthcare and innovation are driving some of the activity, notes Datasite, while global conflicts mixed with more complex health issues continue to pose challenges.

Themes and trends

Several factors fuelled the revival of M&A activity across healthcare and life sciences in 2024, with many companies, particularly those in the pharmaceutical and MedTech sphere, looking to new technologies to build and expand their capabilities.

In its 2024 ‘Global M&A Trends in Health Industries’ report, PwC states that M&A will continue to be a critical tool for unlocking value and driving innovation across healthcare and life sciences, highlighting the following key themes.

First, divesting non-core assets. With higher interest rates forcing companies to demonstrate higher returns for shareholders, companies will continue to strategically evaluate and identify non-core and margin-dilutive assets for divestment. The proceeds from these divestments will then increase the dealmaking capacity of those companies as they seek to acquire assets that align with their strategic visions.

Second, pressure on rates of return. In addition to research and development activity, pharmaceutical companies will seek to address gaps in their drug pipeline by directing capital toward biotech companies. With higher interest rates and required returns on investment, prepared sellers armed with good data supporting their value will receive the most interest from prospective buyers.

Thid, continued rollups of fragmented sectors. Private clinics, specialist care providers, dental clinics, veterinary clinics and services groups such as ophthalmology, IVF, and nursing homes and elderly care remain fragmented. Private equity is also expected to continue to focus on these sectors.

Lastly, digital capabilities to deliver cost-effective value-based care. Companies seeking opportunities to digitalise through implementation of analytics technology, digital direct-to-consumer therapeutics offerings, smart health devices and other software innovations will continue to acquire or partner with data and analytics and other technology companies that can deliver these digital solutions.

“Discrepancies in valuation expectations between buyers and sellers can pose a significant challenge,” notes Merlin Piscitelli, EMEA chief revenue officer at Datasite. “As such, companies need to conduct thorough due diligence and leverage expert valuation services to bridge gaps and reach mutually agreeable terms.

“Following that, successful M&A requires effective integration,” he continues. “Post-merger integration is particularly complex due to differing IT systems, legacy components, corporate cultures and operational practices. With the advent of artificial intelligence (AI), this has become an even bigger consideration for companies looking to acquire and requires thorough due diligence and risk mitigation.”

Active markets

As one of the most active sectors for M&A, healthcare and life sciences companies need to consider a variety of issues, including strategic drivers, where opportunities and risks lie, regulatory trends, and the practical aspects of getting deals done.

“I am cautiously optimistic about significant M&A activity through 2025,” says Ms Orjela. “Markets have stabilised and a number of businesses are actively exploring exit strategies and foretelling robust positive financials coming out of 2024. There is significant investor appetite which is being pent up through Q4 2024 as they wait for processes to start. Conditions appear to be well-primed, especially in sub-sectors like services and biotech.”

In the view of Mr Piscitelli, there will be many healthcare and life sciences opportunities in 2025. “In fact, the market, particularly for AI in healthcare, is expected to increase to $188bn by 2030, up from $15bn in 2022,” he concludes. “Yet, to be successful, dealmakers and stakeholders need to remain adaptable – leveraging opportunities as they arise while navigating the complex landscape of regulatory and political challenges.”

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Fraser Tennant