Previously on this blog, we reported that M&A activity in the healthcare sector was expected to rise during 2016. According to a Market Spotlight released earlier this fall by Mergermarket in partnership with RR Donnelley, dealmakers and professionals are maintaining this positive outlook. The Market Spotlight sheds light on the subsectors of the healthcare industry that are likely to experience growth, and the specific deal drivers that are expected to spur M&A activity.
In particular, the Market Spotlight identified digital health as the subsector of the industry most likely to flourish over the next year. Already, we have seen M&A deals in the area of digital health nearly double in value between H1 2015 and H1 2016 (rising to US $10.4 billion in H1 2016, according to Rock Health), and at least one senior executive in the industry has declared that "digital health is the future of healthcare." With all this in mind, it is not surprising that Mergermarkets used the word "revolution" to describe the future of this area of the industry. All told, this is undoubtedly a subsector to keep an eye on.
Other notable insights disclosed in the Market Spotlight include substantial agreement among respondents that Asia is the region most likely to see a surge in M&A activity, as well as widespread concern regarding regulatory issues and geopolitical uncertainty, particularly in the United States. Further, closely aligned with their confident outlook in the digital health subsector, survey respondents believe that the acquisition of synergistic technology or data is likely to be the top deal driver in the industry going forward.
While the future of healthcare sector M&A remains bright overall, the numbers from Q3 2016 may suggest a more cautious outlook, at least in North America. According to a recent report published by PwC, both deal volume and value is down overall in the United States healthcare services industry in Q3 2016 as compared to Q3 2015. In fact, deal volume in Q3 2016 decreased by an enormous 82% as compared to last year, although PwC notes that Q3 2015 is considered to be an outlier in terms of deal value. On a more positive note, Q3 2016 surpassed Q2 2016 by 23.8% in terms of total deal value, and saw five "megadeals" (i.e., deals exceeding US $1 billion in value) compared to just three in the previous quarter.
Narrowing our lens to focus on Canada suggests another reason for optimism. In a report published by CCI Investment Banking, it is noted that Canadian deals constituted 10% of total North American healthcare deal activity in Q1 2016, up from 7% and 8% in the previous two years. Canadian deal activity in Q2 2016 was not far behind, comprising 9% of total North American deal volume. These numbers suggest that Canadian healthcare M&A is heading in a promising direction.
The author would like to thank Geoff Mens, Articling Student, for his assistance in preparing this legal update.
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