The 2020 healthcare deal landscape has proven to be active, despite the turbulent environment and strong macroeconomic headwinds that the year has delivered. The healthcare space has proven itself to be resilient and has been driven by activity in the care services, medical devices and pharma/Biotech sectors that have made up over 50% of deals in the space during the year. There was a lull in M&A activity in the beginning of the year, due to the uncertainty and constraints that followed the COVID-19 virus. As the initial fears and regulations lessened, markets thawed, and M&A activity started to recover over the course of the year.
The care sector saw robust activity, with specialist healthcare REITs and niche funds playing a key part in the sector’s consolidation. A key driver of this activity by REITS and niche funds has been the low hanging fruit opportunity presented by financially distressed care homes, particularly in the elderly care, supported living, and primary care markets. Government funding has failed to match the pace of rising overhead costs placing many care homes in a constrained liquidity position. Through the sale of the care homes, operators have gained capital to alleviate the pressure of rising operating costs and re-shift their focus to management. When we look at M&A activity by purchaser type, trade players and Private equity firms have accounted for most of the transactions. Trade players have identified complementary bolt-ons to expand their offerings and increase their market share. Private equity firms have exploited the fragmented market to reap the rewards of both economies of scale and multiple arbitrage, deploying their dry powder to acquire distressed assets. Notable transactions include Aedfica’s acquisition of 5 homes across the UK in January for £61m and Orpea SA’s acquisition of the TLC Group for £136.6m in March.
The Pharma and Biotech sector accounted for 28 of the 201 deals over the course of the year, supported by several drivers. As expected, companies connected to the COVID-19 response became attractive acquisition targets as the industry attempted to satisfy the unmet need for vaccines, treatments and rapid diagnostics. Apart from the need to respond to the pandemic itself, pricing pressures and increased competition further served as a driving force behind companies reshaping and diversifying their product pipelines. Large Pharma companies have been reliant on core products, making them vulnerable to cheaper, generic treatments. Companies have looked to mitigate this risk by divesting in non-core assets as well as investing in breakthrough treatments. This is evidenced by AbbVie’s acquisition of Allergan for c.£67bn in May. In 2020, c.66% of Abbvie’s revenue came from drugs launched before 2005, 60% of which is comprised of Abbvie's autoimmune drug, Humira. The acquisition of Allergan will help diversify its revenue streams, creating a biopharmaceutical company with leadership positions in key therapeutic areas: Immunology, Hematologic Oncology, Neuroscience, and Allergan Aesthetics. The diversification crucially decreases its dependency on Humira, which has come under pressure from biosimilar competition in Europe.
The Biotech space has seen an influx of funding in 2020. Biotech funding increased from £8.7bn in 2019 to £13.5bn in 2020 YTD1. In addition to the hope of successfully combatting Covid-19, one of the driving forces behind the funding rally has been the increase in appeal to investors who are looking to stem losses incurred in the wider market. While the value of the FTSE AIM All-Share Index has dropped in 2020, the value of the AIM Healthcare Index has risen during the year, increasing by 30% during Q22 alone. Companies have leveraged the increase in funding to support organic growth. Strong organic growth and increases in scientific capabilities have resulted in the acquisition of LGC Limited by an investor consortium led by Cinven Partners and Astrog Partners for c.£3bn in April.
When we turn to the medical device industry, we see that this sector has come under significant strain over the course of the year from the decrease in elective surgeries, supply chain disruptions and slower regulatory approvals due to COVID-19. This resulted in consolidation across the industry as players looked to lower overheads and gain market share. Domestic CDMOs have benefitted from the disruption in global supply chains, as large pharma companies race to get drugs and vaccines to market. Strategic buyers have thus looked for bolt-on opportunities to bolster capabilities and service offerings to capture a larger market share in the wake of the increased demand. This is evidenced by Recipharm’s acquisition of Consort Medical PLC for c.£627m. Consort will expand the scale and breadth of Recipharm’s service offering to become a true end-to-end partner for their customers.
The Petcare market has stood resolute in 2020, with Independent Vetcare Limited (IVC) and Linnaeus Group driving the consolidation of the industry, accounting for 9 of the 14 transactions during the year. The attractiveness of the industry has been supported by COVID-19 driven trends as well as the industries underlying key fundamentals. Key trends included the increase in pet adoption and the working from home (WFH) model. The increase in the prevalence of pets and owners having more time to spend with them, has resulted in an increase in the demand for Petcare services.
The diagnostic sector has seen several deals as the demand for rapid diagnostic kits and services soared in the attempt to curb the spread of the COVID-19 virus. HLM Venture Partners and Illumina Ventures have co-led £57m Series C funding for LetsGetChecked, to accelerate scaling US and EU-based manufacturing supply and wholly-owned CLIA certified lab testing capacity for the company's proprietary COVID-19 test. Beyond COVID-19, it is believed that there is the potential long-term shift to decentralized testing due to the shortage of testing capacity and limitations of laboratory-based testing.
The need for social distancing measures and strain on medical resources have accelerated the shift to digitalization. The adoption of healthcare apps and web-based solutions have been key drivers supporting M&A activity in the Health IT sector. Docterlink, the video and phone consultation service, has increased its active user base by 148% between January and June, as well as growing the total number of NHS GP surgeries using the platform by 278%3. The company’s growth in user base and revenue made it an attractive acquisition for HealthHero, who acquired them in December. COVID-19 might have served as a catalyst for the industry, but the value of IT in healthcare reaches far beyond the pandemic itself. There is an ever-expanding sea of data from which vast amounts of knowledge can be extracted. Innovative data analytic platforms will remain attractive as the healthcare industry will seek partners to support their data management needs. Other notable deals in the sector include The Citadel’s acquisition of Wellbeing Software group for c.£103m in April and Elsevier B.V’s acquisition of SciBite Limited for c.£65m in August.
Dentists, Consultants and primary care centres also received modest attention during 2020, accounting for 23 transactions between the three. The decrease in elective surgeries and the cautious sentiment shared by the population has had an impact on primary care centres and dentists. Notable transactions include Circle Health Limited’s acquisition of BMI Healthcare Limited for c.£1.5bn in August and Medical Properties Trust’s acquisition of 30 Hospitals across the UK for c.£1.5bn in January. There were very few deals in the clinical trials sector, due to logistical difficulties. Levels were returning to normal in Q3 and further recovery is expected, ceteris paribus. It is interesting to note that the remote monitoring and virtual solutions for clinical trials companies could play a significant role in the field going forward as the benefits were realized during the pandemic.
Alpha Helix advised five successful deals in 2020, despite the challenges faced by the industry. Deals involving Alpha Helix included:
- Genix Healthcare sold to Dental Partners and Rodericks Dental in January
- Vision Mental Healthcare sold to Civitas Social Housing in March
- New Directions sold to the TLC Group in March
- Cardio Solutions sold to Healthcare 21 Group in April
- Global Diagnostics (Ireland) Limited sold to Medica Group PLC in November
COVID-19 undoubtedly had a severe impact on the global markets, but the importance of the healthcare sector in the battle against the pandemic coupled with strong fundamentals, supported M&A activity over the course of the year. International buyers have also shown more interest in 2020. Deals involving international buyers have increased from 24% in 2019 to 38% in 2020. This could be attributed to the decrease in uncertainty surrounding Brexit and the planned UK-EU Trade Agreement, instilling confidence in international investors. The mid to long term outlook for M&A activity in the industry remains positive as the world markets recover and innovation drives the industry forward, further proving its resilient nature.
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