A first-quarter slowdown in global M&A activity in the pharmaceutical, medical and biotechnology sector could be a sign that dealmakers are becoming cautious amid an unstable geopolitical climate, M&A news and analysis provider Mergermarket said in its first-quarter trend report.
Global M&A deals in the sector fell 14.8% in value in the first quarter, recording 314 transactions worth $76 billion, down from 379 deals worth $89.2 billion in the year-ago period.
The pharmaceutical, medical and biotechnology sector accounted for 11% of the global M&A value for the quarter.
U.S. M&A activity was hit the hardest, with deal values dropping 42.8% year over year to $32.8 billion for 128 deals, from $57.2 billion for 149 deals in first-quarter 2016.
Private equity as well as larger hospital chains acquiring local community hospitals drove healthcare M&A activity for the past few years in the U.S. More deals may come as a result of the Affordable Care Act surviving a recent repeal-and-replace attempt from Congress and the Trump administration, the report said.
Europe saw 98 deals worth $38.5 billion in the quarter, up more than double compared with $16.6 billion for 120 deals in 2016. However, Johnson & Johnson's $30 billion acquisition of Swiss drugmaker Actelion Ltd. in January contributed to 76.9% of the region's total M&A value in the sector. Globally, the deal accounted for 39% of the sector's M&A value for the quarter.
Brexit impact limited
Brexit's impact on M&A activity in the pharmaceutical industry will be limited, said Dane Hamilton, a U.S. healthcare editor at Mergermarket.
"The industry has proved resilient in adapting to global jurisdictional changes over years," Hamilton said in an email to S&P Global Market Intelligence. Major drug companies already have a presence in all European markets, so the impact on the drug business will be minimal, he added.
The Asia-Pacific ex-Japan region's M&A activity fell as well. There were 56 deals recorded worth $4.1 billion, down 47.4% from 65 deals worth $7.9 billion in the first quarter of 2016.
The region is expected to recover though.
M&A activity in China is expected to increase, said Mergermarket finance researcher Jane He.
"There will be more opportunities for Asian players, especially from China and Japan, to make acquisitions. Nine out of 10 Chinese pharmaceuticals are seeking buys in Europe and the U.S.," He said.
The Chinese companies are looking to improve their drug portfolios and upgrade their positions in the China market, and have an overseas presence, she said.
Biotechnology represented the largest subsector by value, recording 42 deals worth $38.8 billion in the first quarter, more than ten times the $3.5 billion from 48 deals in the year-ago period.
Dealmaking in this subsector is driven mainly by the demands of the major pharmaceutical companies and the economy, said Hamilton. "Drug companies have for years outsourced their R&D activities through the purchase of biotechs. When the economy is strong, there tends to be more dealmaking — either through company sales or IPOs — because valuations are higher," he added.
While M&A activity will continue to face headwinds from the uncertainty plaguing global markets, President Donald Trump's desire to deregulate and lower corporate taxes and the market's growing interest in investing in treatments for rare diseases, cancers, and spinal and immune conditions, are seen to be supportive of dealmaking, Mergermarket said.