Q3 2017 Healthcare & Life Sciences M&A Market Update

October 2017

After a robust Q4 2016 to close out the year, M&A activity has remained at healthy levels in the first half of 2017. 2016 ranked as the third most active year for M&A in history, and M&A activity remains at healthy levels in 2017. Overarching market themes, such as low costs of capital, large balance sheets, and the desire to offset low organic growth, have been consistent from 2016 into 2017. These market factors are expected to remain prevalent and drive M&A activity through year-end. 

Healthcare continues to be an active segment of the M&A market. In the first half of 2017, the sector witnessed 21 megadeals (transactions exceeding $1 billion) compared to 20 in 1H 2016, while the median EV/Revenue multiple held at 2.4x from 2016 and EV/EBITDA multiple has remained strong at 12.7x as both strategic and private equity buyers hold and look to deploy record amounts of cash. Given ongoing uncertainty in Washington, investors throughout 1H 2017 have focused on areas less exposed to regulatory overhaul, such as outsourced services, healthcare technology and retail health providers. Corporate themes as well as market uncertainties will likely continue to drive the consolidation of hospitals, health plans and doctor groups. If the Trump administration’s proposed tax reforms enable U.S. companies to lower effective tax rates when repatriating cash currently domiciled overseas, many biotech firms could benefit and this could influence M&A activity. Additionally, drug price reform could lead to further biotech consolidation as R&D becomes less affordable for smaller businesses.