Healthcare mergers and acquisitions had a banner year in 2018 with overall deal volume up 14.4% from 2017 to the end of 2018.
While most M&A professionals are bullish on healthcare and life sciences deals in 2019, political uncertainty could be the biggest factor stifling activity in the sector this year and ahead of the 2020 elections, according to a recent Merrill Corp. poll of global M&A professionals.
In fact, concerns about political uncertainty sinking healthcare deals surpass concerns over investor confidence and data privacy, the survey found.
Half of M&A professionals believe the market is headed in a positive direction in the next year, according to the poll, which included more than 200 respondents from the Americas, Europe, the Middle East and Africa. This is a 12% jump from the results of the November Merrill poll, in which 40% of respondents anticipated a positive outlook and 48% believed the market was headed in a neutral direction.
“This aligns with the steady stream of transaction activity we are seeing from our healthcare and life sciences clients,” Rusty Wiley, Merrill's CEO, said in a statement. “The number of projects we are managing is up almost 12% compared to the same time last year. The shift to a technology-based business environment is pushing life sciences and healthcare companies to acquire or form partnerships to build better data and customer-centric capabilities.”
But the positive outlook is tempered by 35% of respondents citing political uncertainty as the most likely factor to sink healthcare deals in the next year. This concern came ahead of investor confidence (22%), data privacy (21%), antitrust/competition (14%) and national security regulations (6%).
The healthcare landscape is becoming increasingly difficult for dealmakers to navigate, as the U.S. enters a major election season and questions still surround the details of Brexit, according to Wiley.
“On top of this, the healthcare industry is still grappling with how to operationalize and protect vast amounts of data, as well as how to attract the technology talent needed to capture that opportunity,” he said.
Healthcare IT represents the richest investment opportunity in the sector, cited by 44% of respondents. That’s ahead of next-generation sequencing (22%), medical marijuana (20%) and both point of care delivery and immunotherapy (19%), the survey found.
Technology will drive the most opportunity in population health and precision medicine, according to a quarter of M&A professionals. Other areas of opportunity included diagnostics and devices (24%), biosensors and trackers (20%), telehealth (18%) and infrastructure and operations (10%).
M&A experts see a number of challenges to harnessing the technology opportunity, specifically data connectivity and the lack of user experience focus. The survey results also highlighted technology-as-a-cost-center culture and the technology talent gap as obstacles in this space.
The hardest part of getting a healthcare or life sciences deal right is talent assessment, followed by data privacy compliance and regulatory communications, according to the survey.
From a due diligence standpoint, respondents overwhelmingly said finding all the red flags (57%) was the hardest part of the process. Predicting buyer interest at 16% was next, followed by data security and control at 12%.