Life Science M&A update 2H-2016

Overview and indicators

Baker Tilly Capital, LLC’s Life Science M&A newsletter provides an overview of the U.S. medical devices and products and the U.S. pharmaceutical (pharma) sectors, including recent performance and M&A trends.

The medical device industry has evolved over the last several decades from a fast growing market to a slower, maturing one, driven by a slowdown in volumes and significant increase in pricing pressures. This trend has led to an increase in consolidation across the industry. McKinsey & Company analyzed 396 M&A transactions between 1999 and 2014 and determined the following trends: medical device leaders relied on M&A activity to grow; large deals are risk/reward for shareholder returns; and smaller deals and frequent M&A activity have performed more consistently compared to other M&A strategies.

For pharma companies, M&A will continue to be a key growth strategy for companies looking to acquire new drugs and technology and improve their market position. The high cost of research and development for new drugs has led to large pharma companies acquiring smaller companies that specialize in innovative drugs or technology in new or emerging markets.

Anticipated tax reform is also expected to spur M&A activity. With over $1 trillion held outside the U.S. by S&P 500 companies, President Trump has proposed a 10% tax holiday that will allow companies to repatriate their earnings back to the United States. According to Wolfe Research data, large companies such as Amgen, Pfizer, Merck, Eli Lilly and Gilead Sciences have large amounts of cash overseas. The proposed tax holiday will help large pharma companies make acquisitions to replenish their pipelines and develop new drugs and technologies.

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