GHP September 2015

ghp September 2015 | 27 funding and investment The Pharmaceutical and Healthcare sectors will continue to see significant merger and acquisition activity over the next five years as aging demographics in major countries, the demand for new drugs and new technology players continues to fuel deal-making, reveals a unique new forecast by Baker & McKenzie published in association with Oxford Economics. The report predicts an estimated US$510 billion in completed pharmaceutical deals in 2015, up from $115.8 billion in 2014. Strong activity of more than $300bn per year is expected to continue in 2016 and beyond as pharmaceutical companies use M&A as a key growth strategy to acquire new drugs and expand into new markets. Healthcare M&A will reach $150bn this year, dip slightly in 2016 and then hit a peak of over $230bn in 2017. Baker & McKenzie worked with leading international economists Oxford Economics to produce the report, which is primarily a Flagship annual report forecasting global and regional trends for M&A and IPO. Oxford Economics produced the data for the report by linking past transactions activity in each of the 37 countries various factors including GDP growth; equity prices; trade flows; money supply; legal structure and proper- ty rights and freedom to trade. For each of these 37 markets, they then predicted GDP growth along with anticipated changes to the other criteria above to predict future transactions activity. Alongside this, Baker & McKenzie analysed the data by sector and discovered that Pharma & Healthcare is predicted to lead in M&A transactions for the foreseeable future. The Forecast was created to assist users within the market to better prepare for future industry changes and provide insight at a global, industry and country level, arming users with content that works in their local market as well as globally There is a particular relevance to this data because there is currently no comprehensive quantitative analysis avail- able that correlates past and future global transaction activity with the macro-economic forces that are driving these shifts in pharma now and over the next decade. Jane Hobson, Global Healthcare leader, commented on the importance of this data within the healthcare industry and the key areas of growth for the future. “Forecasts and predictions for activity in a particular sector help us as a law firm to identify areas of focus and ensure we are staffed as best as possible to serve our clients. From an industry perspective, whilst fore- casts must always be taken for what they are - pre- dictions that may not come to fruition if unexpected external factors are in play - they do help organisa- tions within an industry focus business planning and in some circumstances change behaviour to respond to market dynamics. “Although the industry has seen a lot of consolidation there remain opportunities for corporate activity in the pharma space and there is almost certainly more room for consolidation amongst the medical device and technology companies. As companies strive to provide more return for investors, we are also con- tinuing to see companies considering carving out or spinning off whole businesses. “We will see even more growth in the medical tech- nology/ digital health area, as technology companies enter the healthcare sector with both products (such as wearable diagnostic devices) as well as services (such as patient monitoring and support). While a lot of this technology is being developed by companies whose business has not traditionally been focused on healthcare, these products and several companies will become targets for the large pharma and device companies.” The report highlights a number of markets predicted to grow the fastest in terms of overall M&A in the next five years which include China, The Netherlands, Mexico, India, UK, Germany, Indonesia, Saudi Arabia and the UAE. Tim Gee, Baker & McKenzie’s Global Head of M&A ex- plained why these countries could potentially lead the way for future M&A deals in the healthcare industry. “Many US and European companies have accumu- lated large cash balances available for acquiring new businesses. Financial sponsors also have the potential to boost global transactions, with private equity firms sitting on a record US$1.1 trillion in un-invested cap- ital. Cross-border transactions will play a significant role as companies look to gain market presence in high growth markets.” There are always external factors which could affect the data. Like any prediction, known risks and un- foreseen circumstances could disrupt global recovery and cause a drop in transactional activity, such as recent talk of the European economic issues, Chinese investment falling sharply, and the US Federal Re- serve raising rates faster than expected. Whilst these could affect the findings of the report it outlines the six macroeconomic trends that will drive global economic growth over the next few years, with these cyclical trends, along with structural factors and business sentiment, forming the basis of the reports predictions for how much M&A and IPO activity will rise or fall over the next five years. Jane added a final comment on the results. “By providing this outlook, we aim to provide cor- porate leaders and investors with a forward-looking overview of the economic and investment environment they are likely to face around the world. Armed with this knowledge, we hope they will be better prepared for the future.” Report shows upward trend in global M&A across the industry.