Recent Healthcare M&A Market Overview

By: Michael White

Healthcare M&A activity has seen a recent increase with numerous high-profile transactions announced in the third quarter across subsectors.  First quarter deal volume was on pace year over year with overall dollar volume contracting considerably due to lower leverage utilization and availability as buyers began to evaluate risk due to COVID. The full effects of COVID-related restrictions were felt more fully during the second quarter as both strategic and financial sponsors shifted their focus to current operations and the preservation of cash.  Both total volume and the number of transactions were at a low not seen since the financial crisis of 2008.  The VIX, a market traded index and measure of overall market volatility, reached its second highest level since beginning to trade in 2004. 

Valuation in an M&A context at its simplest measure is a function of appetite for risk.  As uncertainty increased in the second quarter, the multiples or premiums being paid in acquisitions trended down significantly.  The lower appetite for risk in deal making was seen across company life cycles and capitalization thresholds, as the nearly negligible deal volume was apparent in the lower middle market as well as publicly traded large cap stocks. 

However as the charts in the attached report show, four of the top five deals in the third quarter of the year cover different sectors of healthcare showing broad continued interest in M&A and that deals that were in process were likely delayed instead of halted due to COVID.  Blockbuster transactions representing biopharma, digital health/HCIT, diagnostic imaging equipment and next-generation sequencing point to an increased appetite for risk going forward across both life sciences and more traditional healthcare services.  This increased appetite for risk denotes positive returns being generated in the healthcare ecosystem and will continue to support valuations going forward. 

In an industry as critical, complex, and capital intensive as healthcare, there exists a need for a specialized investment advisor like the professionals at Founders Advisors.  Please reach out to our team to discuss potential implications of recent healthcare M&A activity for your business or sector.