Although pharmaceutical M&A has declined sharply over the past year, there has been an uptick in financial buyer activity in the sector in the first eight months of 2017. We don’t typically see a lot of financial buyers in this space, since they are easily outbid by strategic buyers that have the advantage of easy access to capital and cost synergies.
Also, private equity buyers have been flocking to acquire “healthcare-lite” targets, such as eHealth or contract research organizations, in the past 12 months, largely to avoid potential regulatory and reimbursement roadblocks that come with a new administration.
Pharmaceutical M&A is down 65% (only 55 deals) compared with the 156 transactions posted in 2016. Spending through late August has reached just $19.6 billion, down 77% compared with 2016. Granted, that’s only eight months’ worth of deals versus 12 months of 2016, but you can see where this market stands. Big Pharma is waiting for the promised tax reform legislation before making any big moves. And that could be a long wait.
PE Steps In
But as of late August 2017, six pharmaceutical companies (11% of total deals) have been acquired by PE firms. In all of 2016, only five of these deals occurred, accounting for 3% of total pharmaceutical deals. The data give us reason to believe that the lack of consolidation among pharmaceutical companies made room for private equity to move in.
In 2017, PE firms are going after corporate divestments. Four of the six deals were divestments, and all the targets were publicly traded companies at the time of sale.
Based on five disclosed prices, $2.7 billion has been spent by PE firms in this sector. Those deals include Endo International plc (NASDAQ: ENDP) divested its generic drug maker to Advent International for $124 million. Perrigo Company plc (NYSE: PRG) sold its active pharmaceutical ingredient business to SK Capital for an undisclosed price. Valeant Pharmaceuticals International, Inc. (NYSE: VRX) sold iNova Pharmaceuticals to The Carlyle Group (NASDAQ: CGR) and Pacific Equity Partners for $930 million, and Valeant also sold Dendreon Pharmaceuticals, Inc. to Sanpower Group Co. for $819.9 million.
