Q1 2017 Healthcare & Life Sciences M&A Market Update

March 2017

Despite a tepid start in 2016, fourth quarter M&A activity represented the most active quarter of the year, making up for overall declines from 2015. Globally, 2016 ranked the third-most-active year for M&A in history and October ranked as the busiest month ever. The confluence of historically low costs of capital, CEO confidence and the need to augment low organic growth remain fundamental drivers of the U.S. M&A market, fueling optimism for 2017.

The healthcare sector continues to be a bright spot in the M&A market. In 2016, this sector witnessed 14 megadeals (transactions exceeding $1 billion) compared to 18 in 2015, while garnering the highest EV/EBITDA multiples of any sector in the middle market with the median EV/EBITDA multiple increasing 21.9 percent over 2015 to 15.0x. Given the uncertainty of how the Trump administration will affect health policy, many analysts are predicting more deal making in 2017, as hospitals, health plans and doctor groups look to join forces to weather unexpected changes that come into effect. The Trump administration has proposed allowing U.S. companies to pay a lower tax rate when repatriating cash currently held overseas – a policy from which many biotech firms would benefit. Biotech M&A could accelerate if changes in the tax code support this trend by facilitating the repatriation of cash trapped overseas for bigger biopharma companies. Furthermore, Trump’s vows to boost U.S. GDP to 4 percent or greater, cut taxes and reduce regulation, coupled with a global equities market that has risen 9 percent on average since the election, creates a highly favorable M&A environment in which to transact deals.