Deal metrics climb in 2013 but big pharma stays away from M&A

It is a fair assumption that in a bull market predators must be prepared to pay handsomely to snare their quarry. Data from EvaluatePharma suggest that this is exactly what happened last year, as the average M&A deal value almost doubled on 2012.

The average sales multiple paid also climbed, to the highest level seen since 2009; buoyant US share prices are no doubt helping persuade those considering more risky transactions. This is all good news for sellers, but at the same time the fact that the number of transactions being announced remains low should raise a flag. A look at who is splashing the cash – clue: it is not big pharma – shows that not all potential buyers consider the current market to offer good value (see tables below).

Deal values for disclosed deals
Year announced Total value ($bn) Total count Average deal value ($m)
2013 75.7 107 708
2012 43.2 109 396
2011 55.2 125 442
2010* 51.2 124 413
2009* 42.8 111 386
2008* 62.3 117 532
2007 70.3 115 611
2006* 78.9 98 805
* excludes deals above $20bn

An analysis published by EP Vantage yesterday, revealing a big jump in the amount spent on pharma deals last year but across fewer deals, pointed to a big climb in average deal terms (Pharma M&A values buoyed by climbing asset prices, January 23, 2014). The table above – which excludes transactions for which no figures were disclosed – shows the extent of this escalation.

Excluding substantial $20bn+ megadeals, average M&A transactions are now back to pre-financial crash levels, a remarkable resurgence. This finding is echoed in a look at the average sales multiple paid last year. An admittedly all-encompassing metric, the analysis below does suggest that the industry is becoming more comfortable buying future, and thus riskier, revenue streams.

Once again mega-transactions have been excluded from the calculation, and it also cuts out the very small scale buyouts, in an attempt to paint a picture of the bigger ticket takeovers.

Overall, these two analyses suggest that although fewer deals are being done, when they are contracted the sellers are managing to justify higher valuations than at any time in the last few years. Considering the remarkable performance of the Nasdaq Biotechnology Index – which has tested new highs this year already – this is perhaps not surprising.

Average sales multiple paid for $250m+ takeovers (excluding megamergers)
Year announced Deal count Deal value ($bn) Sales ($bn) (Target) Sales multiple
2013 40 72.3 11.7 6.2
2012 28 37.5 6.8 5.5
2011 33 48.8 9.3 5.2
2010 35 66.7 19.7 3.4
2009 26 25.3 2.9 8.8
2008 25 39.1 6.9 5.6

A look at who has been spending the money in the last couple of years sheds more light on what has been driving these deal metrics. The ranking tables below show which companies have committed the most money to M&A transactions over the last three years, and it is clear that the industry’s traditionally big spenders, big pharma, are not in the steering seat.

Unsurprisingly, it has been the mid-cap specialty and generic players driving the deal flow, in their quest to add revenues and cash flows to their burgeoning businesses. Only Johnson & Johnson has spent more on takeovers than the likes of highly acquisitive Actavis and Valeant in the last couple of years. And the vast majority of J&J's outlay went on the $19.7bn purchase of Synthes, a medtech company.

As such, the analysis shows just how little big pharma is committing to bringing in new blood, with the industry’s 11 big pharma companies spending $44m on M&A in the last three years, boosted by that Synthes acquisition. By comparison, the industry’s 11 top spenders outside of the big pharma cohort spent more than double this amount, $109bn.

Of course, these deal-hungry specialty players have a very different strategic outlook to their larger brothers. And big pharma commits a lot of money to product and research deals, and their own R&D efforts, so they are certainly not hoarding their cash. At the moment many are arguably more concerned about improving the prospects of their drug pipelines than buying revenue streams, but it is no secret that the likes of GlaxoSmithKline and Novartis now prefer to pursue a collaborative relationship with potential targets, rather than commit to a takeout.

Sky-high asset prices will not be helping change their mind on this. Luckily for these small start ups, big biotech has stepped in to a certain extent; Gilead, the industry’s sixth biggest M&A spender of the last three years, splashed $12.3bn on three high risk assets – Pharmasset, Calistoga and YM BioSciences. But big pharma's disinterest has to be disappointing, particularly for venture-capital backers focused firmly on a takeout.

Meanwhile, companies with cash flows to attract the empire building of the likes Valeant, Endo, Forest et al can be assured of ongoing interest. And with M&A on the mind of many a mid-cap chief executive, valuations seem unlikely to dip anytime soon.

The industry's big spenders – three-year M&A bill
Big pharma 
Company 3yr spend ($bn) 3yr deal count M&A ranking
Johnson & Johnson 21.4 11 1
Bristol-Myers Squibb 10.0 3 7
AstraZeneca 3.8 8 12
GlaxoSmithKline 3.7 7 13
Novartis 2.1 6 17
Total 11 big pharma  44.0 56
Outside big pharma
Company 3yr spend ($bn) 3yr deal count M&A ranking 
Actavis 15.7 6 2
Valeant Pharmaceuticals International 15.2 18 3
Takeda 14.9 7 4
Amgen 14.2 7 5
Gilead Sciences 12.3 4 6
Total 11 ex-big pharma 108.7 79
For a list of the top 20 M&A spenders, please contact

To contact the writer of this story email Amy Brown in London at or follow @AmyEPVantage on Twitter

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