The world’s growing and aging population combined with an increase in demand for high-quality, comprehensive, real-time care is shaking up the life-science industry, and driving many companies- both large and small- towards merger & acquisition activity as a necessary requirement of success.
Deliotte reports in a sponsored project with The Economist Intelligence Unit that the headline grabbing, large figure, M&A activities are just the tip of the iceberg, and suggests that there are many other, more subtle and arguably less significant aspects of the industry that are also contributing to the rapid growth and constant change of the industry norms.
5 Things Driving Life Science Companies Towards M&A
Increasing financial and competitive pressures are resulting in the need for companies to scale, and have become the primary drivers for M&A activity within the life science industry. Deloitte reports that these pressures are likely to intensify due to the increasing life expectancy of the population combined with the need for more complex and long-term care. Companies are now forced to perform at higher rates with less financial resources due to the rise in care requirements. Additionally, the movement towards value-based care models is stressing already exhausted health care budgets, giving cause for many in the industry to seek out new and more efficient solutions as well as business models.
New markets for health care companies are complemented by rising incomes and increased numbers of insured individuals, resulting in the expansion of the industry. This has resulted in large companies proactively seeking out acquisition opportunities in new countries with potential growth opportunities.
Patent expirations are giving cause, for pharmaceutical companies in particular, to turn to acquisitions, as well as licensing and collaboration opportunities, as a more cost effective way to fill their product portfolios when compared to R&D.
Rising demand for care amid health care reforms have been attributed to an increase in the number of tech-savvy consumers who are demanding that the industry, health care in particular, creates and adopts new technologies, as well as increases accessibility to personal information through secure forms of communication, in order to improve the overall quality of treatment and care- supporting the move away from the traditional fee-for-service and towards a value-based business model. This new structure- lower cost and increased quality- is creating obstacles for smaller companies, and opening the door for M&A activity.
Tax considerations, while not important to all companies, are proving to be a driving factor among the most experienced acquirers. For life science companies in particular the location of their headquarters can have significant tax implications. Companies like Medtronic, who moved their headquarters from the U.S. to Ireland in 2014, and are now saving 22.5% on federal taxes, are clearly seeing the strategic value in acquireing smaller companies.
While M&A activity seems to be directly related to company size-the larger the company the more likely to participate- the landscape looks to remain active.
Nearly half of all companies with less that $1bn in revenue, and an incredible eighty-five percent of companies with revenues greater than $1bn plan to participate in M&A in the next three years.