The Strategist

Investor activity in the healthcare market reaches a 10-year maximum

04/19/2018 - 14:57

Bain & Company consulting company released a report on activity of investors in the healthcare and pharmaceutical sector in 2017. Private equity funds and private investors spent $ 42.6 billion to buy such companies throughout the world, which is a record for the last ten years. The total volume of corporate M&A in the healthcare market increased by 27% compared to 2016, reaching $ 332 billion. According to experts, investors are in a hurry to acquire assets before changing the regulatory regime in the US, Europe and China.

According to Bain & Company and Dealogic, in 2017 the volume of transactions in the healthcare market, held with participation of private investment companies and private equity funds, amounted to $ 42.6 billion, which is a record since 2007. The number of transactions increased from 206 in 2016 to 265 in 2017. The total volume of corporate mergers and acquisitions among medical and pharmaceutical companies around the world in 2017 also grew by 27% compared to the previous year, and amounted to $ 332 billion. Over a third of the total volume was provided by mega deals worth over $ 20 billion. Their total volume reached $ 126 billion, the largest was the merger of the American supplier of prescription drugs CVS Health with the insurance company Aetna for $ 69 billion, announced in December.

The paper notes that the global pharmaceutical and healthcare market is exposed to five major factors that lead to its radical transformation and force players to adapt to changing market conditions. Among are forthcoming change in the regulatory regime in connection with the American health care reform, Brexit and the change in the system of selling medical equipment in China. The report notes that investment funds can minimize potential risk of changing legislation by investing in companies, which this change will affect to a lesser extent, for example, in organizations providing contractual services in the field of health.

Other factors are growing digitalization and consumerism in healthcare. Experts note that healthcare starts to widely use new technologies, although with some delay. "Market participants are gradually accepting machine learning, robotics, stand-alone and smart devices," the report said. This trend gives investors an opportunity to profitably invest in companies that deal with IT in the field of medicine, medical and technological start-ups, as well as in development of small medical companies and introduction of the latest digital technologies. Consumerism is also closely connected with digitalization. Thanks to widespread dissemination of fast and wireless Internet, consumers can quickly find medical services and medicines on more favorable terms.

New smart devices with remote control allow consumers to monitor their health with the help of specialists without visiting medical facilities. Growing involvement of consumers in the process and technology development are closely related to one more factor affecting the market, the development of personalized medicine.

Genetic tests, individual treatment programs, biotechnology and biopharmaceuticals are changing the current market situation and giving investors new opportunities.

Another significant factor is the "Amazon effect", consequences of an agreement signed between Amazon, JP Morgan Chase bank and Warren Buffett's investment company Berkshire Hathaway. In late January, they announced plans to establish a joint company, which will engage in research and development in the field of health. It was reported that its activities will be aimed not at making a profit, but at reducing costs of preventive measures and treatment of employees of the three companies (about 1.1 million people). Other organizations, for example, Apple, Samsung, Alibaba and Tencent, announced similar initiatives. All this, according to the report’s authors, defies traditional medical companies, leading to market transformation and increased competition.

Speaking about the European market, experts note that in 2017 the volume of transactions in the health sector involving only private investment companies has increased almost threefold - to $ 12.8 billion from $ 4.6 billion in 2016, and the number of transactions has increased from 49 to 70. "The trend in Europe suggests that increasingly more investors are paying attention to this growing market, resistant to recession," Franz Robert Klingan, one of the main authors of the report, says. Speaking about peculiarities of the European development of the medical market, he notes rapid growth of research in the field of biopharmaceuticals and, as a result, growth of investments in this sector.

The European market of medicine is sensitive to the problem of population aging and, as a consequence, development of technologies and services aimed at elderly people, for example, specialized medicines, devices, hospitals and nursing homes. In addition, authorities of many European countries are under growing pressure from taxpayers, who demand more efficient use of funds for medicine and insurance. This has already led to the fact that many local players are opting for outsourcing, attracting private investors or specialized contractors.

Experts at Bain & Company believe that investment funds will continue to be particularly active in the European health sector. The report predicts further consolidation of the market as funds seek to spend money in anticipation of further tightening of the ECB monetary policy. In addition, the growing demand for medical services for the reasons listed above will only increase attractiveness of European companies working in the health sector.