The healthcare industry is currently leading the world in M&A activity. To fully understand the current landscape, it is important to review some of the most common reasons these transactions are taking place, and how they’re shaping the future of healthcare.
Record Pace
M&A is nothing new to the healthcare industry, but these days, deals are replicating at a rather rapid rate. Healthcare M&A volume rose 16 percent in 2021, with value increasing at a staggering 44 percent. That steep jump in value contributed to another record-breaking figure. Last year, healthcare witnessed the announcement of eighteen megadeals, or transactions with a value greater than $5 billion. With the cost of acquisitions going through the roof, deal multiples are at an all time high, forcing buyers to work harder and smarter to deliver on deal value.
Overall, the total value of healthcare M&A transactions totaled at least $440 billion in 2021. This deal acceleration is generating demand for greater scale, focus and specialization.
What’s Driving Healthcare M&A?
As we appear to be sitting stagnant in a mid-pandemic reality, it is not much of a mystery as to what could be driving the hike in healthcare M&A. While innovation and proficiency have long been hallmarks of medicine, those elements have never been more critical than they are now.
Portfolio optimization is one of the leading driving factors in healthcare M&A. The number of companies and organizations who are looking to add a new capability to their outfit has risen dramatically. Strategic acquisitions as a proportion of total transaction volume for 2021 is up 7 percent compared to four years prior.
Pharmaceutical companies are especially eager in this aspect, seeking out industry contenders who can help support their primary agenda while improving patient treatment. Today, that means linking up with companies that specialize in mRNA, gene and cell therapies, and digital analytics capacity.
Those digital analytics are especially crucial as the healthcare industry moves toward the digitization of the patient experience. The demand for innovation and expertise in technologies like smart health devices, healthcare practice management software, and consumer-centric delivery models is incredible as healthcare professionals race to keep pace with evolving technology. The need to modernize business and practice models has led to major cross-sector transactions, combining the best of medicine and technology.
Environmental, social, and governance considerations are also making an unexpected impact on the rise in M&A activity. Investors and stakeholders are more future-focused than ever, actively seeking partnerships with organizations that contribute to worldwide societal challenges. It is fair to say that health industries have been on the frontlines of that battle for some time, without so much as a glimmer of rescue, contributing the brightest minds and most dedicated workers to the resolution of our greatest challenge in recent history.
Key Healthcare Sectors
The pandemic swiftly and permanently changed the face of healthcare, especially in the specialties of biotechnology and life sciences. Research and clinical trials commenced at lightning speed to create viable vaccines and understand the COVID-19 virus. Even as our comprehension and action has sharpened, the work is far from done.
As we continue to witness the prolonged effects of the pandemic, it is almost certain that the demand for vaccine research and development will remain high. mRNA manufacturing is high on the list of desired features for innovative therapeutics driven by biotech companies. At this point in 2022, pharma is still leading the pack as the healthcare sector with the greatest M&A transaction value and volume.
Healthcare services are still high on the list, and will continue to see increased rates of M&A activity throughout the year. As telehealth continues to assert a dominance on standard practice, so does the demand for technology and serious innovation to join forces with healthcare services.
Healthcare M&A on the Horizon
Healthcare companies across every sector are expected to continue searching for strategic partnerships and acquisitions wherever possible. To take full advantage of the M&A frenzy, it’s more important than ever for healthcare professionals and their new peers to embrace innovation, change, and opportunity. With digitization becoming a major part of both the patient and provider journey, change is bound to happen more quickly than ever before. However, it appears these major adjustments are well overdue and poised to make a major impact on the present and future of healthcare in the best way possible.
The team at Appraisal Economics has extensive experience in the healthcare industry and offers superior valuation services for medical equipment and all related real property. With more than three decades of experience in the medical, pharmaceutical, and biotech sectors, our team of experts can assist you with confidence.