Healthcare's deal boom

3 minute read  14.08.2018 Victoria Allen, Shane Evans

M&A Outlook: Australian Healthcare 2018

Our new M&A Outlook: Australian Healthcare 2018 report has analysed global and Australian M&A activity in the healthcare sector. It identifies key commercial drivers, risks and challenges, high-level observations and lessons learnt, and how they all impacted on the local market and deals up until 30 June 2018.

"The global healthcare deal frenzy is set to continue for at least another 18 months as technology giants including Amazon, strategic players and private equity firms step up their fight for limited assets. That is the view of MinterEllison [which] also expects Australian healthcare and adjacent sectors will be a hive of activity for some time to come"
Joyce Moullakis, The Australian Financial Review, 18 July 2018

 

Some of the key findings of the report are as follows:

1. Strongest start ever

Global healthcare M&A is off to the strongest start of the year ever, with $US306 billion of deals having been announced through the first half of calendar 2018 and 81% average premiums paid (compared to one month prior closing price).

2. Megadeals 

Megadeals are gaining pace, highlighted by three $A50 billion plus deals over the last 12 months.

3. Technology giants

Technology is playing an important role in the healthcare sector. The technology giants are starting to move into the sector, and are impacting on existing business models, supply chains and valuations of incumbent players, as was highlighted with Amazon's acquisition of US online pharmacy group PillPack.

4. Spin-offs

Spin-offs by conglomerate companies are on the rise, as they aim to get 'back to basics'.

Valuation ratios – pre & post spin-off

5. Australia is increasingly attractive


Australia is increasingly attractive, with nearly $A48 billion worth of M&A transactions in Australia over the last decade and representing 27% of all Asia-Pacific healthcare M&A from 1 January 2017.

Our predictions

We expect to see robust M&A activity in global healthcare over the coming 18 months, as cashed up buyers chase an increasingly limited pool of assets that combine quality businesses with growth potential. In this environment, we should expect to see 'peak-cycle' bid premiums offered by acquiring parties, as attempts are made to lock in access to key industry sub-sectors.

Within the Australian healthcare space, we expect deal making to be particularly active over the medium term in the aged care and radiology / imaging fields. The buying parties are likely to be either industry leaders looking to access additional growth, Chinese companies after skills and 'know-how', or private equity (PE) groups that are drawn to healthcare's predictable cashflows.

On the sale side, investors' general dislike of sprawling conglomerate structures could see global majors offload units, while rich valuations and perceptions that the bull market could be ending, may entice PE firms to exit some of their holdings, including quickly "passing the parcel" on even the most recently acquired of its portfolio (such as iNova Pharmaceuticals, Icon Cancer Care, I-MED and Qscan).

Furthermore, Blackmores Limited and other smaller companies in the vitamins and health supplements sub-sector, including Probiotec, Star Combo Pharma and Vita Life Sciences, as well as infant formula providers such as ViPlus, are expected to continue to be attractive targets for foreign investors, following in the steps of Vitaco, Suisse and Nature's Care.

Our full report explores these key takeaways in detail.

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https://www.minterellison.com/articles/healthcares-deal-boom

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