What to Expect for 2016 Healthcare M&A Activity
Recent volatility in worldwide markets, weakness in China, terrorism, softness in Europe and emerging markets, budget issues, and healthcare reform dislocations are among the dynamics that have clouded the 2016 picture for healthcare M&A. Here, we help clarfty things.
China is moving from a manufacturing and investment orientation to a consumption/consumer-based economy.The economy is still over-regulated and political freedoms are tight.Yet, China is going through a long-term, inexorable transition.The torrid growth rate has slowed to about 6.5% and stock market circuit breakers awkwardly kick in to prevent radical price swings, but these are reminders of how much progress remains. China is overbuilt in certain sectors and the lack of checks and balances have created great distortions. Yet, China’s market vicissitudes are the necessary effects of creating more discipline in transforming the economy and society. Reform will takes years, and the dislocations will provide the necessary lessons for the government and market participants to understand the benefits of a more liberal, less tricked-up environment.
- Oil Glut
The weak worldwide economy and new technologies and sources of energy have hammered the price of oil and contributed to major hits on the stock market.Yet, the market shock has severely reduced investment in R&D, exploration and production.Demand for oil and gas will rebound and when it does ramping up supply will lag in satisfying demand.Taking a multi-year perspective reinforces the benefits of keeping a steady hand and not over-reacting to short-term market swings.
The human and economic cost of terrorism is tragic. But, virtually every responsible country is contributing to reducing and hopefully eliminating the disproportionate effects of extremism.
- Healthcare Markets
Despite the imperfections in healthcare reform, new standards of care that treat pathologies less invasively, are safer and more effective, and involve quicker healing times and less overall expense will prevail.Examples include: minimally invasive heart valves, next generation minimally invasive glaucoma surgical devices (MIGS) and surgical robotics. Intuitive Surgical recently reported that 2015 global procedure growth was approximately 14%, led by growth in general surgery, growth in the use of da Vinci surgical systems outside the United States and strength in urology. The new economy will also reward offerings that empower consumers to have more control over their care and optimize digital information connectivity.
- Healthcare M&A
Market volatility tends to dampen merger activity, as forecasting gets obscured and would-be acquirors need to strengthen their own positions.Yet, market swings also create buying opportunities for large companies that have accumulated cash and can afford to weather short-term conditions.Consolidation in virtually all healthcare segments, lower reimbursements and more stringent regulatory requirements make the cost of doing business much higher for middle market companies especially when a direct sales force is needed.The new dynamics may cause such companies to rethink the risks and benefits of remaining independent and seek to find a home in a larger company with the infrastructure in place to benefit from operating leverage and economies of scale.
In sum, we recommend taking the long view and adhering to fundamentals, but coming to grips with the structural changes taking place.