The annual JP Morgan Healthcare Conference kicks off virtually this week. In years past, the event has heralded announcements of large partnerships, joint ventures and mergers and acquisitions. This year, the health care sector could not even wait until the second full week of January to kick off an acquisition announcement spree. The quick start is an early sign of what promises to be an active year for funding and M&A activity.
So far, we have seen more than $3.1 billion of announced deals in the health care services sector, which was largely driven by Centene’s $2.9 billion acquisition of the behavioral health provider Magellan on Jan. 4. Already, this deal represents 82% of last year’s first-quarter deal volume ($3.8 billion). It’s safe to say that year over year, we will see more health care services deal volume in the first quarter than we did last year.
On the life sciences side of the ecosystem, the pharmaceutical sector has already exceeded its last year’s deal volume in the first quarter by $1.6 billion, which includes Bristol Myers Squibb’s blockbuster $11.1 billion acquisition of MyoKardia. Biotech has been off to a slower start this quarter after posting $193.2 billion in 2020, its largest year for deal volume on record. While this year may not be as busy for pharma and biotech as 2020, there are no shortages of therapies that require funding.
Keen observers will note that the data above excludes the acquisition of Change Healthcare by UnitedHealth Group’s Optum for $12.8 billion. Such tangential deals in nonmedical services and health care technology will continue to see activity in 2021. Rock Health estimates that 2020 saw $12 billion in digital health venture funding, which nearly doubles 2019’s $7.4 billion. We expect 2021 will be an even busier year for digital health given the disruption thrust upon the ecosystem by the COVID-19 pandemic.
Additional tailwinds for deal volume across the entire health care ecosystem include reduced political uncertainty, a favorable interest rate environment and vaccination. Dealmakers have a continuously clarifying view of White House health care policy over the next four years, and the threats to the Affordable Care Act seem largely in the rearview mirror.
This improved certainty reduces some risk associated with executing deals. Meanwhile, the Fed has said it intends to keep interest rates low until at least 2023, which will make capital cheaper and deals more attractive. Furthermore, RSM estimates that $4 trillion of economic activity is currently sidelined, waiting to be unleashed once the populace has achieved herd immunity, social distancing requirements relax and businesses can return to full capacity.
The takeaway
These powerful macroeconomic factors will fuel an incredibly active year in health care deal activity. While we are sure to see additional announcements around the JP Morgan conference, this is just the beginning.
