Disruptive Tech To Drive M&As In Healthcare Space

In 2019, healthcare firms need to focus on portfolio, informs Mahesh Singhi, Founder & MD, Singhi Advisors optimisation

TOTAL M&A value in the healthcare space in 2018 was driven by bolt-on deals, smallto medium-sized acquisitions that account for less than 25 per cent of the buyer’s market capitalisations, and not megamergers. These deals generated 43 per cent of the year’s total deal value ($198 billion) and 81 per cent of the deal volume. Though the sector has a robust market capitalisation and maintains surplus cash reserves, it is not being deployed optimally. Life science companies amassed more than $1.2 trillion in firepower in 2018 but only 16 per cent was deployed on acquisitions. This represents a steady decline from 2014, when companies deployed 27 per cent of their firepower on M&A. The year also saw focused companies outperform their less focused counterparts.

In 2019, companies in the healthcare domain will need to focus on portfolio optimisation. Divestitures will increasingly be used to unlock value. Companies with low-digit market share will find it difficult to differentiate their products to payers and providers as networks of relationships and therapeutic focus assumes paramount importance for commercial success. Digital alliances will need to be key focus areas with companies concentrating on building relationships with new digital entrants to improve R&D efficiency and differentiate products with real-world evidence.

Further, the growing burden of deductibles and copays will slowly reshape non-emergent healthcare purchases to look more like other consumer transactions. Public demands for transparency in pricing and quality will stimulate development of tools to facilitate comparison shopping. Meanwhile, employers will engage in more direct contracting, while payers seek joint ventures with deliv ery. Payers will also pursue more risk-based reimbursement arrangements.