U.S. Life Sciences CEOs See Financial Drivers as Catalyst for M&A: KPMG Poll

NEW YORK, Sept. 4, 2019 /PRNewswire/ -- Low interest rates and high stock valuations are fueling U.S. life sciences CEOs' growing appetite for mergers and acquisitions, KPMG's CEO Outlook found.

"U.S. CEOs are very much attuned to financial markets and the cost of capital," said Carole Streicher, KPMG LLP's Deal Advisory leader for healthcare and life sciences. "Investors want to see CEOs maximize returns, whether that is from cutting costs, repurchasing shares, making acquisitions that will immediately boost earnings per share, or gaining a medication, device or technology that can sustain the product pipeline."

KPMG's survey of life sciences CEOs found:

• 43%of U.S. life sciences CEOs say they have a "high appetite" for M&A, an increase from 33% a year ago.
• 58% of U.S. CEOs said using cheap financing, such as low interest rates before they rise, are a primary driver of deals during the next three years.
• 48% of those in the U.S. pointed to favorable stock valuations as a motivator for deals.
• 44% of life sciences CEOs globally found that business-model transformation was the leading driver of M&A, followed by improving market share and also capitalizing on low interest rates (both 39%).
• Cost cutting was seen as a motivator equally among global and U.S. CEOs (39%).

External Focus 

When asked about achieving growth objectives during the next three years, U.S. life sciences CEOs surveyed see strategic alliances with third parties (41%) as the most important approach, topping organic growth (25%), M&A (14%), outsourcing (11%), and joint ventures (9%).Compared with a year ago, strategic alliances showed the most significant increase by 26 percentage points and organic growth as an approach to achieving growth objectives fell 18 percentage points among U.S. life sciences executives.                                                                          

"Life sciences CEOs realize that it makes sense to find partners with capabilities in research to help bring products to market, whether that is through working with start-ups or venture partners or looking at technological solutions," Streicher said. 

The survey found that life sciences companies are planning an array of approaches to pursue growth objectives with 61% saying they will set up accelerator or incubator programs for startup firms, 57% would pursue corporate venturing and 50% said they would increase investment in "disruption detection and innovation processes." The biggest increases in responses year over year were the interest in accelerator/incubator and corporate venturing, while the biggest decline was in partnering with third party data providers – a drop from 48% of respondents to 27%.

Despite U.S. life sciences CEOs' sentiment for deals and the industry's history of multibillion-dollar, headline-grabbing transactions, CEOs from the consumer/retail, insurance, banking, manufacturing, energy, automotive, and technology sectors have an even bigger appetite for M&A. Only asset management, telecommunications and infrastructure lagged the life sciences sector in the U.S. industries in this category.

KPMG's CEO Outlook surveyed more than 193 life sciences CEOs worldwide, including 44 based in the United States. Report was part of a broader survey conducted during the spring of 2019 of more than 2,500 CEOs at companies with more than $500 million in annual revenue.

About KPMG LLP 
KPMG is one of the world's leading professional services firms, providing innovative business solutions and audit, tax, and advisory services to many of the world's largest and most prestigious organizations.

KPMG LLP is the independent U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International's independent member firms have 197,000 professionals working in 154 countries. Learn more at www.kpmg.com/us.

SOURCE KPMG LLP

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