Navigating change: H1 in review
First-half activity remains on par with 2016, as strong fundamentals continue to drive M&A
An impressive first half of the year for US dealmaking reflects M&A's enduring value in an uncertain market
After a very strong 2017—when M&A in the US reached its third-highest overall deal value since the financial crisis—deal value grew again in the first half of 2018. Compared to H1 2017, value rose 30.5 percent to US$794.8 billion when compared to the same period in 2017, while deal volumes held steady.
Activity has been brisk despite increasing macro-economic headwinds. The Federal Reserve recently raised interest rates and signaled its intention to do so again twice more before the year is out. Threats of a bourgeoning global trade war are intensifying after the imposition of tariffs by the US and other large economies. And the US stock market has experienced significantly higher volatility this year than it did last.
One could reasonably expect that M&A would cool against this backdrop, but the fact that it has not suggests that deals are going ahead for essential strategic reasons rather than opportunistic ones.
Technology and its disruptive impact across all sectors is one of the main factors that has made M&A a necessity. The impact has been most apparent in sectors such as retail and healthcare, where digital platforms are ideally placed to disrupt established service and distribution channels. No sector has been untouched, however. Unless non-tech companies have the resources in-house to write their own software and algorithms—and most do not—M&A may be the best option to keep pace with dynamic change.
We expect the second half of the year to be busy, but no one can afford to ignore the threats posed by rising interest rates, increasing protectionism, an incipient trade war that could increase tariffs, a potentially inverting yield curve, unsustainable pricing demands and a volatile stock market. Companies will need to navigate these dynamics if M&A's bull run is to continue.
John Reiss
Global Head of M&A
White & Case
Gregory Pryor
Head of Americas M&A
White & Case
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Explore the data
The pharma, medical and biotech sector delivered 247 deals worth US$65.4 billion in the first half of 2018, with deal value down by 31 percent year-on-year.
1: Sanofi SA bought Bioverativ Inc. for US$11.1 billion
2: Kohlberg Kravis Roberts & Co. agreed to buy Envision Healthcare Corporation for US$9.4 billion
3: Celgene Corporation bought a 90.37% stake in Juno Therapeutics Inc. for US$8.2 billion
Despite the downturn in overall deal value, the sector continues to deliver large, industry-shifting transactions, such as Sanofi's US$11.1 billion acquisition of Bioverativ—its largest deal in seven years—and KKR's US$9.4 billion announced acquisition of Envision Healthcare. These were two of the largest transactions in the sector in the US in the first half of 2018.
US$65.4 billion
The value of 247 deals targeting the US pharma sector in H1 2018
As in previous years, M&A in the sector has been driven by the need for large pharma groups to refill their product pipelines as blockbuster drugs go off patent and move into new treatment areas.
Sanofi's purchase of Bioverativ, a maker of hemophilia medicines, for example, boosts the French drug company's position in the treatment of rare diseases. Celgene's US$8.2 billion acquisition of a 90 percent stake in Juno Therapeutics, a developer of blood cancer drugs, which is close to having a treatment for lymphoma cleared by regulators in 2019, was underpinned by a similar rationale. Celgene's best-selling medicine Revlimid loses patent protection in 2022, making the Juno acquisition a key strategic investment for the group. In the case of the Novartis purchase of AveXis, a gene therapy treatment developer, the deal moves Novartis into a new and fast-growing area.
31%
Percentage decrease in deal value compared to H1 2017
As in other sectors, pharma M&A has been influenced by the trend toward convergence with the technology sector. Swiss pharmaceuticals group Roche, for example, paid US$1.9 billion for a stake in health-tech company Flatiron Health, with a view to speeding up research by using Flatiron's software and data analytics.
Large pharma companies are cash-rich and enjoy strong credit ratings. They will continue acquiring smaller biotech companies in order to renew pipelines and keep pace with the development of new treatments. As a consequence, M&A in the sector is expected to accelerate into the second half of the year.
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