“The reality is that the deal chessboard is active”

Key Points

M&A volumes started low but expected to rise in 2023

Vito Sperduto: Coming into this year, the first half was always likely to be very slow - which is what we’re seeing right now. We’re about to have M&A volume not seen since Q2 of 2020, which was obviously during the pandemic shutdown. And we’ve just come off of 2021, which was the best year in history by all measures. But things seem to be stabilizing a bit across the board.

Andrew ‘Cal’ Callaway: On the corporate side, there is a tremendous amount of conversation at the moment. Large caps are all very well suited to pursue select acquisitions – capital is not an issue for these larger companies. We’re seeing them really look at all lists at the moment and think about what targets they want to chase over the next six to 12 months. 

Ahmed Attia: The reality is that the deal chessboard is active. And the larger players recognize that their competitors are going to zone in on the same assets. Because what we’re seeing is that the number of available and actionable quality businesses is lower than what it used to be, as a result of consolidation. In the pharma services sector, we probably had double the number of public companies in the sector four or five years ago. 

Tough financing markets force strategic alternatives

Andrew ‘Cal’ Callaway: On the smaller cap side, it's a very different story. Obviously, there are select companies that do have access to capital but many don’t. And many are running short from a runway perspective. What we’re seeing is those companies thinking long and hard about strategic alternatives; the perfect storm for what looks like a very active second half of the year from an M&A standpoint.

David Levin: You’ve got a situation with really tough financing markets for companies. That’s changing how people are thinking about what the strategic alternative landscape is for them. It was easy before to do everything on your own –  as financing was more available. Now, because financing is so much harder to get, there’s a shift in the boardroom where people are perhaps more realistic about taking an opportunity to capture some real value through an M&A deal.

Healthcare: disruption, innovation, and valuations

David Levin: One of the things we’ve seen in life sciences M&A over the last few years is that valuations in biotech became incredibly robust, making it difficult for large-cap buyers to pay the kind of premiums required (usually about 60-100% on every trade). The deals usually came down to one buyer with a differentiated view. But, because valuations are coming down, we’re seeing more competitive processes again.

When you think about CEO confidence amongst large-cap pharma, that is definitely there. They’re looking to do deals. They’re going to be losing about $200 billion worth of revenue on their products in the back half of the decade and that's giving them real urgency to try and do transactions right now. 

Andrew ‘Cal’ Callaway: The good assets are still trading for pretty crazy prices. I think for the next set of companies whose valuations have compressed a little bit, it will be more difficult for boards and management teams to think about transacting. 

Growth and scale remain the priority

Ahmed Attia: I think the pillars that are driving some of the M&A include the need to accelerate top-line growth. Growth is still a key driver for large-cap players. And fundamentally, the market has been rewarding businesses that are excelling in that regard.

There has also been a heightened focus by larger players in the space to really build scale. M&As between strong businesses that give very differentiated capabilities are a dynamic that continues to drive a lot of focus in pharma services.

We are bullish that the pharma services space will continue being highly active. We’ve seen a lot of investments made by financial sponsors over the last few years. 

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