After a Slow 2022, Healthcare M&A Poised To Pick Up in 2023, Says Bain

Payers have cash on hand but will look for “adjacencies” rather than M&A with other payers because of the “regulatory environment.

Last year was a tepid year for merger and acquisition (M&A) deals in the healthcare sector till the fourth quarter according to 2023 Bain Global M&A report. But two large deals in the fourth quarter may be indication that dealmaking will pick up this year, according to the Bain report, which covered other industries besides healthcare

The report notes that many healthcare companies have large amounts of cash on hand. Pharma company may have a particularly strong appetite for deals because the patents are expiring on many of their top-selling drugs. “That will pressure companies to innovate more quickly and could spark a possible increase in the number of pharmaceutical companies acquiring to catch up on R&D that was stalled during the early days of the pandemic,” says the Bain report, which was released yesterday

The two fourth quarter “megadeals” that the report says may signal that 2023 will see more M&A activity than 2022 were Johnson & Johnson’s $16 billion acquisition of Abiomed, which develops cardiopulmonary devices, and Amgen’s $28 billion acquisition of Horizon Therapeutics, which develops drugs that treat rare diseases. The report’s authors say they expect to deal activity in the pharmaceutical and biotech branch of healthcare to pick up “once companies become comfortable with the macroeconomic uncertainty.” The Inflation Reduction Act will not, says the Bain report, “cause substantial headwinds for dealmaking in 2023.”

The top 25 companies in the payer sector of healthcare have a total of $200 billion on their balance sheets that might encourage dealmaking. But the report also notes that the “current regulatory environment makes the merger of two similar payers challenging in the U.S.” Instead, payers may look for acquisition in “adjacencies.” The report says, though, “it can be hard for large U.S. payers to find big adjacencies that both fit their strategy and will pass regulatory scrutiny.”

The Bain experts said in the report that there were no large provider network acquisitions last year and also referenced the “highly fragmented nature of this space.” The report points to Amazon’s acquisition of One Medical and CVS’ acquisition of Signify Health as evidence of the “continued blurring of the lines between retail and healthcare.”