Pharma Medical and Biotech European M&A looks to repeat 2017 performance
The hefty EUR 27.6bn acquisition of Switzerland-based Actelion by Johnson & Johnson [NYSE:JNJ] in January 2017 set the tone for what turned out to be a year of prolific deal-making in the pharma medical and biotech (PMB) sector. The value of deals in 1Q17 was worth a mighty EUR 33.4bn across 129 deals, the highest value on record behind the EUR 59.1bn total value of deals in the sector recorded in 2Q14 (122 deals).
The sector is witnessing another busy January this year. The ongoing sale of Sanofi’s [EPA:SAN] Generics business, which has been in the pipeline since early last year, and its recently announced acquisition of Bioverativ, which was the haemophilia franchise spun off by Biogen [NASDAQ:BIIB] last year, heralds another active year in PMB M&A.
According to Mergermarket data, deal count rose modestly in 2017, from 502 deals in 2016 to 547 in 2017, but for a second consecutive year, total deal value across the PMB sector in Europe increased substantially, with nearly EUR 64bn worth of deals in 2017 compared to EUR 53.5bn in 2016, equalling 7.7% of total deal value across Europe in 2017.
Spin-offs have been a favourite way to enhance an asset’s credibility and potentially prepare it for a takeover - as was the case with Shire’s [LON:SHP] EUR 32.2bn acquisition of Baxalta in early 2016, another haemophilia division that was spun off from Baxter [NYSE:BAX] in 2015 for EUR 15.9bn.
Aside from spin-offs, another theme that pervaded PMB M&A in 2017 was the dichotomy between bidder and seller price expectations. The pursuit of Actelion by Johnson & Johnson began in the latter part of 2016, with the Swiss target rebuffing the takeover approach based on the US healthcare giant's proposed offer not meeting the seller’s valuation expectations. The deal eventually came to fruition a few months later with a price bump that factored in the spin-off of Actelion’s early stage pipeline, Idorsia [SWX:IDIA]. And, thanks to investor confidence, the asset is trading at a 119% price increase since listing on 19 June 2017.
Similarly, German generics Stada faced controversy when the deal fell through in 2Q17 as takeover offers from private equity consortium Bain and Cinven did not meet shareholder acceptance thresholds. Stada management contended that the takeover price did not include the long-term upside potential in the company’s portfolio. The deal eventually came to fruition in 2H17 for a healthy EUR 5.2bn, showing that bidders are having to pay higher premiums and shy away from opportunistic deal-making.
Not surprisingly, the DACH region was in the spotlight as the highest deal maker by value, with a 62.4% share of the pie. Contributing to the value was the takeover of German plasma and biotherapeutic drugs specialist Biotest by Chinese investment fund Creat for EUR 1.3bn. Asian inbound interest in European PBM also reflects in Astellas’ [TYO:4503] acquisition of Belgian biotech Ogeda for EUR 500m, plus EUR 300m worth of earnouts, one of the 15 largest deals of the year.
Among the top 15 deals, France proved to be an active region in the medical space, taking a 12.5% share of total deal value in Europe. PAI sold its 55.5% stake in nursing homes operator DomusVi to a consortium of investors for EUR 1.3bn, as well as medical biology laboratories Cerba HealthCare to Partners Group and PSP Investments for EUR 1.8bn.
Swiss Novartis [VTX:NOVN] - typically known as a pharma-focused consolidator - also jumped onto the wave of M&A in the medical sector in France with the acquisition of Advanced Accelerator Applications, a radiopharma company, for EUR 2.9bn.
The medical sub-sector also took the limelight in the UK with the EUR 1.2bn disposal of a 20% stake in medical products group ConvaTec by PE firm Nordic Capital to Danish Novo [CPH:NOVO-B]. Although the asset is not placed in a high margin segment, the acquisition of a minority stake hedges risk for Novo and enables market penetration in the UK, a healthcare system that focuses on cost cutting and on paying for supplies based on outcome measures. For a medical products group like ConvaTec, this means squeezing prices and steering towards high volume sales.
The flurry of consolidation with smaller assets in the PMB sector propelled the highest number of deals in 2Q17, outdoing by far all previous quarters with a total of 157 deals worth EUR 16.5bn. This turned out to be a pace-setter, with the highest number of deals since 2008. Activity in Europe may be impacted in the future by changing tax regulations in the US which favour corporations to return overseas cash, or deploy it towards M&A.