Will Healthcare M&A Live Up to its 2015 Record?

Published Date : Jan 04, 2016

Last year, health care mergers and acquisitions amounted to an estimated US$550 billion in deals, recording more than three times its previous annual estimate. However, seeing that anything close to that number is a massive challenge to achieve, mergers and acquisitions in the health care industry are likely to wear down. 

A Reuters report highlights several reasons for a reversion of the deal-making streak. 

The most primary reason is tax savings. This has been one of the most significant catalysts for the health care sector, especially Pfizer’s acquisition of Allergan for US$ 160 billion. This was the largest transaction of the year and this eliminated one of the few targets that was actually big enough to enable a leading pharmaceutical firm to relocate its headquarters, thereby slashing its tax bill. Lawmakers in the United States are now steadily cracking the whip on similar “inversions”.

Another reason for the slowdown in mergers and acquisitions in this year is the fact that most of the major and obvious collaborations have already been made, making finding good targets increasingly difficult. Investors have also been growing rather skeptical. Less than four of 10 buyers in the US witnessed rising share prices after an acquisition across industries. This figure is half of what it was in 2014’s first quarter. 

The third factor that will cause a reversion of mergers and acquisitions in 2016 is the possible limitations of Horizon Pharma, Valeant Pharmaceuticals, and Endo International, who have been on a recent M&A binge. Concerns regarding such platform companies, as they are called, have increased this time, making alliances less acceptable and more difficult. 

The final challenge is Obamacare and its related reforms that have resulted in a scared scramble for each medical dollar, whether it is hospitals, drug distributors, or insurance companies. Regulators are carefully scrutinizing at some of the recent deals, making firms nervous.