Private equity and deals activity in the sector

Speaking to Nigel Layton, our Global Head of Pharma and Life Sciences, Tarifa discusses why private equity firms are interested in the sector, what businesses can do to prepare for private equity investments and much more.

The M&A market has been through a difficult time. Though globally deals rose in the Spring, they have since been on a downward trend with both the number of deals and aggregate value falling. But that isn’t to say there aren’t deals to be had, particularly in pharma and life sciences. Indeed, the UK saw deal activity increase during the second quarter across the sector. 

Close observers know that healthcare is a sector that has proven somewhat insulated from the current geo-political and macro-economic troubles afflicting trade around the world. And in recent years it has been private equity playing a big role in keeping the market buoyant.

There have been some notable transactions. GSK took on Bellus Health for a heart racing US$2bn early this year while private equity firm General Atlantic sold Oak Street Health for $10bn, in what was probably the biggest healthcare and life sciences deal involving private equity in the world so far in 2023. In June, Freya Bidco took over Dechra Pharmaceuticals for $6bn.

In some ways these are the latest episodes in a decade-long development which has seen life sciences and pharma become increasingly attractive to private equity. That’s a change on past attitudes. Healthcare was once viewed as too complex and too high-risk and many investors steered clear. But opinion has shifted. The factor changing investor minds is the sector’s link to national health economies, a connection which means it has inherently stable income streams. In response specialist firms have emerged while generalists have boosted their skills and knowledge base to make well informed investments.

But there is an inbuilt advantage for many private equity firms: they can utilise their knowledge of aligned sectors, such as business services and technology media and telecommunications (TMT), to make informed investment decisions. That knowledge is particularly important when private equity firms look at opportunities in technology-driven healthcare companies, which tend to be more challenging to assess due to concerns about the strength of their intellectual property (IP).

It’s worth also noting that consumer driven healthcare businesses have garnered more interest as state health services come under financial strain and public interest grows in health and wellbeing. Observers believe these factors leave space for good brands to attract investment and grow significantly.

Big strategic acquisitions are not the only deals generating interest. Interest in smaller deals, or bolt-on acquisitions, is likely to continue as sector players intensify their interest in data and novel technology used in either new consumer devices or in manufacturing.

However, though healthcare and pharma holds great appeal, especially after the success of Covid vaccinations, that doesn’t mean private equity and trade buyers should rush in without careful planning. The right operational data—financials, production and inventory figures, and customer information, among others—needs careful assessment. As do the skills required to manage and evaluate a new acquisition. There’s no escaping the detailed work if deals are to be a success. 

That said, the sector is breaking new ground and has newfound fame; companies are growing and multiplying. If care and time is taken when faced with an acquisition opportunity, there is certainly scope for continued investment.