The number of health care mergers and acquisitions so far this year, not to mention the size of the companies involved, has been quite impressive. With more than 240 completed deals under 2015’s belt, these transactions have (so far) been valued at more than $92.5 billion. This marks a 73% increase over the value of health care M&A activity for the same period last year. It also makes health care the busiest sector in terms of M&A.
Pfizer’s pending acquisition of Hospira is worth $17 billion alone. Through the purchase, Pfizer will gain access to Hospira’s specialty injectable drugs and infusion technologies and will help it grow its Global Established Pharmaceuticals business. Another massive deal was Valeant Pharmaceuticals’ $11 billion acquisition of gastrointestinal specialist Salix Pharmaceuticals; that deal was the largest yet for Canada’s Valeant — an aggressively acquisitive firm. And in January of this year, Merck acquired antibiotic maker Cubist Pharmaceuticals for some $8.5 billion.
But it’s not just Big Pharma that’s making moves. Health care systems, insurance firms, software companies, and service providers are also wheeling and dealing. Medical device maker Medtronic paid $43 billion for another device maker, Covidien. Insurer UnitedHealth Group plans to buy pharmacy benefit management firm Catamaran for $12.8 billion. Another insurer, Humana, is selling subsidiary Concentra to a joint venture between hospital operator Select Medical Holdings and private equity firm Welsh, Carson, Anderson & Stowe for $1.1 billion. And health care software services firm Cerner acquired the hospital information system operations of Siemens for $1.3 billion.
What is driving all of this activity? For one thing, pharmaceuticals are clamoring to add to their product pipelines as patent expirations rise, so they’re shopping for new drug candidates. For example, Pfizer’s revenues dropped 13% in 2013 as it lost patent protection for key drugs including Lipitor and Viagra. To combat those declines, it has sought other companies to bulk up its portfolio. Its pending acquisition of Hospira will add that firm’s portfolio of biosimilars, among other technologies; within the past year Pfizer has also purchased the vaccine portfolio of Baxter International, sterile injectables development company Innopharma, and a controlling stake in Swiss vaccine firm Redvax, all of which should help the firm keep its pipeline robust.
In another example, Teva Pharmaceuticals made an unsolicited $40 billion bid for rival generics producer Mylan in mid-April 2015. Teva, which makes generics as well as branded drugs, is facing patent expiration of multiple sclerosis treatment Copaxone, its top seller (which accounts for about half its profits). If that deal closes, it will be the largest of its type thus far.
Another factor driving all of this activity is the fact that many companies are enjoying the benefits of having large cash reserves on hand. Historically low interest rates have absolutely encouraged acquisition activity. And investment firms (such as the aforementioned Welsh, Carson, Anderson & Stowe) are increasingly targeting the health care industry in hopes of making a solid return.
One could also argue that in the post-Affordable Care Act world, bigger is better. Consolidation brings strength in numbers. As more and more companies successfully navigate the Affordable Care Act and meet recently implemented regulatory demands, they are now ready to restructure their operations for strategic growth.
Overall, M&A activity has returned to prerecession levels and activity is only expected to grow. Behind the health care industry, consolidation in the technology, media, and telecom industries has also been rampant. As consumer confidence grows, so does the appetite of hungry businesses seeking to enter new markets and create new revenue streams.