More Healthcare And Life Sciences M&A Activity Expected In 2015: KPMG Survey
Cash Reserves and Easy Credit seen as Leading Drivers for Deals
NEW YORK, Dec. 2, 2014 /PRNewswire/ -- Whether it is dwindling drug pipelines or changes from the Affordable Care Act, mergers and acquisitions in the healthcare and life sciences industries are expected to continue unabated in 2015 as favorable credit markets and cash-rich balance sheets feed deals, according to a survey from KPMG LLP, the U.S. audit, tax and advisory firm.
"We see a convergence of factors facing providers, health plans, and drug and device makers that are forcing them to make tough decisions about strategy and those decisions sometimes entail selling the business," said Bill Baker, an advisory partner who oversees transactional services in the healthcare & life sciences practice at KPMG. "Technology, regulation, consumerism and pushback from employers and government payers are reshaping all facets of healthcare, forcing companies to review all of their options. The capital markets – low interest rates and strong valuations – are creating favorable conditions for those considering selling or divesting assets."
In the KPMG M&A Outlook survey of 738 U.S.-based finance officers and M&A professionals covering a variety of industries, one-third said pharmaceuticals/biotechnology will be the most active industry for mergers and acquisitions in 2015, trailing only technology companies (47 percent). In addition, 27 percent saw healthcare providers as being ripe for consolidation, trailing only technology, pharmaceuticals and the oil & gas industry.
Large cash reserves and available credit are the biggest factors driving M&A overall and healthcare is no exception, according to KPMG survey respondents, who work as senior management at companies in an array of industries or as advisors in those sectors, including energy, consumer products, technology, manufacturing and financial services.
Among payers and providers, the biggest driver for M&A in 2015 is the response to the Affordable Care Act. Consolidation of core businesses and competition was also seen as a driver for M&A. Among pharmaceutical companies, the biggest drivers of M&A are patent expirations for many leading drugs and the need to hone product portfolios to build "franchises in key treatment categories."
The biggest hurdle to healthcare transactions next year is the identification of suitable targets and regulatory factors, among the providers and payers, the survey said.
Due diligence issues
Despite an apparent eagerness to do deals, due diligence issues still arise, according to the survey. The assessment or volatility of future revenue streams was a larger issue for healthcare companies (58 percent) versus all industries (51 percent) and the cultural/HR assessment was a bigger factor for healthcare companies (32 percent) than industry averages (28 percent). While the quality of earnings was the third leading due diligence issue in the healthcare sector, it trailed the industry average for all sectors at 29 percent, compared with 42 percent.
"Mergers and acquisitions are never easy for everyone involved. Executing effectively on due diligence – while negotiating a favorable yet mutually acceptable set of transaction terms – is just the beginning of a successful acquisition process," Baker said. "Managing the various stakeholders of ownership, employees, customers and vendors during an integration process can be daunting and, if not executed on properly, can destroy the very benefits the transaction was modeled on generating. Fundamentally, merging two companies can create tremendous upheaval affecting governance, finances, IT, operations, tax and human resources. It is imperative that the process is managed to make the transaction smoother and less disruptive."
KPMG assists buyers and sellers among providers, payers, pharmaceutical firms, medical device makers, as well as investors, with a wide breadth of services, differentiated products and experience to help clients identify, evaluate and successfully implement growth strategies, including transactions, in today's market.
About the 2015 M&A Outlook Survey
In collaboration with the Research practice unit of SourceMedia, the publisher of Mergers & Acquisitions, KPMG LLP surveyed 738 M&A professionals in September 2014. The report covering U.S. industries can be found online. Please click here for the link and the accompanying press release. A webcast will be held on January 16, 2015, where KPMG M&A leaders will review and discuss the data.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International's member firms have 155,000 professionals, including more than 8,600 partners, in 155 countries.
2014 M&A Survey Supplemental Data
| Which factor do you think will most drive deal activity in 2015? |
Overall |
Healthcare Sector |
||
| Sample Size |
738 |
79 |
||
| Availability of credit on favorable terms |
115 |
15.6% |
17 |
22% |
| Improved consumer confidence |
98 |
13.3% |
8 |
10% |
| Improving equity markets |
55 |
7.5% |
4 |
5% |
| Large cash reserves/commitments |
296 |
40.1% |
28 |
35% |
| Opportunities in emerging markets |
137 |
18.6% |
15 |
19% |
| Other |
37 |
5.0% |
7 |
9% |
| What is the primary reason for the acquisitions your 'company intends' /'clients intend' to initiate in 2015? |
Overall |
Healthcare Sector |
||||
| Sample Size |
738 |
79 |
||||
| Defend against competition |
34 |
4.6% |
8 |
10% |
||
| Enhance intellectual property |
38 |
5.1% |
8 |
10% |
||
| Enter into new lines of business |
108 |
14.6% |
10 |
13% |
||
| Expand customer base |
115 |
15.6% |
11 |
14% |
||
| Expand geographic reach |
142 |
19.2% |
17 |
22% |
||
| Financial buyer looking for profitable operations and/or gain on exit |
80 |
10.8% |
8 |
10% |
||
| Invest in another function in the supply chain |
27 |
3.7% |
3 |
4% |
||
| Opportunistic—target becomes available |
158 |
21.4% |
9 |
11% |
||
| Other |
36 |
4.9% |
5 |
6% |
||
| Which of the following due diligence issues are most consistently challenging for your company/clients to contend with? |
Overall |
Healthcare Sector |
||
| Sample Size |
738 |
79 |
||
| Anti corruption/FCPA issues |
74 |
10.0% |
8 |
10% |
| Assessment or volatility of future revenue streams |
376 |
50.9% |
46 |
58% |
| Cost synergy analysis |
178 |
24.1% |
18 |
23% |
| Cultural and HR assessment |
209 |
28.3% |
25 |
32% |
| IT infrastructure |
132 |
17.9% |
17 |
22% |
| Quality of assets |
179 |
24.3% |
15 |
19% |
| Quality of earnings |
307 |
41.6% |
23 |
29% |
| Tax contingencies |
156 |
21.1% |
11 |
14% |
| Other |
28 |
3.8% |
6 |
8% |
| Which of the following integration issues/areas are most consistently challenging for your company/clients to contend with? |
Overall |
Healthcare Sector |
||
| Sample Size |
738 |
79 |
||
| Accounting and finance transformation |
187 |
25.3% |
22 |
28% |
| Cultural and HR issues |
388 |
52.6% |
42 |
53% |
| Customer and supplier integration and rationalization |
173 |
23.4% |
10 |
13% |
| Program management |
95 |
12.9% |
10 |
13% |
| Products and services integration and rationalization |
235 |
31.8% |
30 |
38% |
| Sales and marketing transformation |
159 |
21.5% |
16 |
20% |
| Supply chain transformation |
114 |
15.4% |
9 |
11% |
| Tax integration |
84 |
11.4% |
6 |
8% |
| Other |
34 |
4.6% |
4 |
5% |
| Which factor do you think will most inhibit deal activity the most in 2015? |
Overall |
Healthcare Sector |
||
| Sample Size |
738 |
79 |
||
| Availability and/or cost of debt financing |
48 |
6.5% |
9 |
11% |
| Constrained consumer demand |
39 |
5.3% |
3 |
4% |
| Geopolitical risks |
108 |
14.6% |
12 |
15% |
| Lack of suitable targets |
202 |
27.4% |
24 |
30% |
| Regulatory considerations |
127 |
17.2% |
14 |
18% |
| Slow growth environment |
148 |
20.1% |
12 |
15% |
| Stock price volatility |
43 |
5.8% |
3 |
4% |
| Other |
23 |
3.1% |
2 |
3% |
| Contact: |
Bill Borden |
| KPMG LLP |
|
| 201-505-6351 |
|
| To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/more-healthcare-and-life-sciences-ma-activity-expected-in-2015-kpmg-survey-300003608.html |
SOURCE KPMG LLP
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