The past several years have seen a significant number of mergers and acquisitions in the healthcare and life sciences spaces. Driven by a strong economy and billions of dollars in government funding, investors are snapping up innovative companies almost in spite of challenges such as inflation, labor shortages, and supply chain issues. According to a new KPMG report, this trend is expected to continue in 2022, with greater competition for a smaller number of high-value targets.
The report, titled “KPMG 2022 Healthcare and Life Sciences Investment Outlook Survey,” features insights from more than 300 industry executives who offered their perspectives on how the continuing pandemic, rapidly shifting market factors, and a changing policy environment may impact investment decisions in 2022. According to the report, most healthcare investors plan on prioritizing operational efficiencies, joint ventures, and innovative products and services, with healthcare IT and telehealth among the top targets for acquisition this year.
Overall, investors are bullish, with 70% of respondents expecting to see an increase in M&A activity, with more than half of private equity investors saying they plan to conduct at least 10% more deals than in 2022. Valuations are expected to be higher, with the limited number of high-value or highly innovative assets likely to have the greatest impact. In spite of investors' ambitious plans, the year will not come without challenges for them. 50% of respondents indicated that rising inflation and increased capital costs will have a modest effect on their ability to conduct M&A, while 28% said it would serve as a major headwind.
Commenting on the new report, Steve Sapletal, KPMG U.S. Healthcare and Life Sciences Deal Advisory Leader, said, “The pandemic forged a new paradigm, whereby pharmaceutical and diagnostics companies streamlined speed to market for critical drugs, vaccines, and diagnostics…Whether organizations are investing externally to enhance their product or service offerings, or investing in technological capabilities to improve internal operational efficiencies, we expect that deals will be focused on supporting the new industry reality, one that is more digital and much more consumer-focused.”
Despite the myriad challenges facing businesses in 2022, the healthcare and life sciences sectors appear to be poised for another year of growth, innovation, and change. With the increased focus on digital and consumer-oriented products and services, the flurry of business seems likely to benefit patients and the public as well as investors.