As we expected, the results of the latest Capital Confidence Barometer reflect a sector grappling with massive and rapid transformation. Exponential advances in digital technologies, sector convergence and fierce competition are propelling health organizations to rethink their strategies. M&A appetites have increased significantly from a year ago, as dealmaking intentions shift from “wait and watch” to “act now.”
Almost half of our respondents intend to pursue deals in the coming year, with 60% believing temperatures in the M&A market in their sector will continue to rise. A steep recovery in the M&A pipeline and in deal completions underpin these intentions as organizations become more aggressive in their pursuit of high-quality assets. Yet, even as the M&A market accelerates, executives are holding firm on dealmaking discipline, with 78% saying they have failed to complete a planned deal in the last 12 months.
A hotter M&A market can, at least in part, be attributed to portfolio transformation, as health organizations focus on rightsizing their portfolios. Almost two-thirds of health executives say that portfolio transformation has risen to the top of the boardroom agenda. Shareholder activism is also top of mind. In an effort to shape portfolios of the future, both boards and activist shareholders are centering their attention on asset disposal. However, their reasons appear to differ. While executives may lean more toward recycling capital into the portfolio, activists are looking to see a certain element of realized capital be returned to shareholders.
We are also seeing the re-emergence of private equity as a major player in the industry. The recent M&A cycle has been dominated by corporate acquirers. However, private equity rebounded in 2017 and is set to take a more aggressive role in competition for assets. The challenge for private equity will be to find companies with the necessary infrastructure to support growth and with management teams sophisticated enough to build scalable, sustainable enterprises.
As we look ahead, health executives say they expect cross-border dealmaking to be the predominant theme of M&A in the next 12 months. This is despite the geopolitical uncertainty that serves as a dominant hurdle to near-term growth.
Read the full report here.
EY legal contacts:
Jean-Christophe Sabourin – Global Transaction Law Leader
Jan Andringa – Global Law Sector Leader Government & Public / Health