Asia-Pac healthcare M&A expected to jump 80% to US$55b in 2018

Singapore

HEALTHCARE mergers and acquisitions (M&A) in the Asia-Pacific are expected to jump by some 80 per cent to US$55.1 billion this year, driven largely by big pharmaceutical companies snapping up manufacturing sites in more affordable markets.

The report by Baker McKenzie and Oxford Economics also highlighted that healthcare M&A globally will swell 50 per cent to US$418 billion, underscored by buoyant market conditions and clarity around the United States' new corporate tax rates. In particular, the lowering of the US corporate tax rate is expected to fuel higher levels of M&A activity in North America.

In comparison, global M&A activity came down to US$277 billion in 2017 from US$306 billion in the year prior on the back of Brexit, the US presidential election and pending tax reform in the world's largest healthcare market. One of the biggest deals sealed last year was the US$11.9 billion acquisition of biotech firm Kite Pharma by Gilead Science.

"Many big pharma companies are looking to invest in the next blockbuster drug, being acutely aware of declining revenues as patents move closer to expiry," said Ben McLaughlin, chair of Baker McKenzie's global healthcare industry group. "This is driving pharma companies to chase smaller biotech start-ups that have a lot of products in regulatory review."

Of the different regions, North America is expected to contribute US$250.2 billion of the M&A activity this year - up 66 per cent year on year - while Europe will be the second biggest contributor of deals at US$104.8 billion, some 11 per cent higher.

The Asia-Pacific is in third spot while Africa & the Middle East (US$4.1 billion) and Latin America (US$3.7 billion) round off the top five.

"Pharma companies are also acquiring local companies for their distribution networks in emerging markets like China, to gain access to the growing middle class that now has disposable income to spend on healthcare," the report said, referring to the Asia-Pacific.

According to Mergermarket, some of the key healthcare deals in Singapore last year include Blue Sail Medical's acquisition of a majority stake in Biosensors International, and Ping An Ventures' purchase of an undisclosed stake in Fullerton Healthcare Corporation for US$121 million. Singapore Press Holdings - which owns The Business Times - also acquired nursing home provider Orange Valley Healthcare for S$164 million.

Meanwhile, the global IPO pipeline for 2018 is expected to rise to a five-year high of US$22.3 billion this year, up from US$15.7 billion last year, as biotech firms seek to leverage on high valuations before a widely-anticipated pullback from current market levels.

Beyond 2018, however, the frenzied pace of deal-making is set to ease all around as interest rates pick up, global trade slows and equity prices correct.

Global healthcare M&A is expected to dip to US$414 billion in 2019 and US$368 billion in 2020. Similarly, IPOs in the healthcare sector are projected to decline to US$21.4 billion in 2019 and US$17.7 billion in 2020.