2016 Healthcare M&A To Be Driven By Geography, Customer Reach: KPMG Survey

Cash-rich pharma sector to be among the busiest for M&A, lagging only technology

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Jan 12, 2016, 09:00 ET

NEW YORK, Jan. 12, 2016 /PRNewswire/ -- Executives and M&A professionals are expecting the wave of healthcare mergers to continue through 2016 as companies use their coffers for geographic and product expansion, according to a survey from KPMG LLP, the tax, audit and advisory firm.

For the second consecutive year, pharmaceuticals/biotechnology is expected to be the second busiest sector for consolidation behind only technology, 70 percent versus 60 percent, according to more than 550 finance executives and M&A professionals. Health care providers are also projected to be the third most active sector for M&A.

"Healthcare is facing a great deal of upheaval because of the profound changes influencing finance, regulation, supply chains and technology, both for their own information systems and the science behind new treatments," said Bill Baker, who leads KPMG's Healthcare and Life Sciences Deal Advisory practice. "Companies are looking for geographic expansion and new markets to improve their prospects as healthcare adapts to changing reimbursement models."

For 58 percent of healthcare industry respondents, large cash reserves will be the biggest factor to drive deal activity in 2016. Other reasons include improved consumer confidence (34 percent) and availability of credit (29 percent). Last year's survey found that cash reserves (35 percent) and credit availability were the two main factors expected to drive deals.

"While markets have been watching for when the Federal Reserve will raise rates from historic lows, credit is expected to be available to complete healthcare deals for the near term future regardless of initial interest rate increases from the Fed," Baker said. "Buyers have strong balance sheets with available cash and good credit terms are presently available for deals, but we are seeing some initial signs of sensitivity in the marketplace."

Caution Flags

The survey showed there is room for caution. A slow-growth environment was cited by 42 percent of healthcare industry respondents, followed by rising interest rates (32 percent) and availability of credit (29 percent), as factors that could inhibit deal activity. In last year's survey of healthcare respondents, the lack of suitable targets was the response from 30 percent, followed regulatory considerations (18 percent).

"Dynamics affecting M&A activity can change year to year or even week to week if there is a market shock of any sort," said J. Preston Parker, principal for KPMG's Deal Advisory segment. "Beyond the external climate for deals, healthcare companies need to address the integration and separation issues that are necessary to deliver value from transactions. Addressing technology, people, process, contracts, legal entity, tax matters and rationalizing product and service portfolios are crucial for deals to succeed."

About the 2016 M&A Outlook Survey

The KPMG Mergers & Acquisitions survey collected responses from 553 executives and financial professionals from a variety of sectors, including 137 from healthcare providers, health plans, pharmaceutical companies and medical device makers.

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 174,000 professionals, including more than 9,000 partners, in 155 countries.