M&A keeps up feverish pace in first half of 2015

Analysis

What a difference a quarter makes. On the surface it looks as if the feverish deal activity seen in the first quarter of 2015 and much of 2014 has fallen off a cliff with the drop in deal values from $69.4bn to a meagre looking $26bn in the second quarter.

However, this dramatic-looking tumble needs some context. Over the half year deals are actually up almost 7% on the $87.3bn recorded in the first half of 2014, one of the biggest years ever for M&A. Yesterday’s announcement that Celgene will be paying $7.2bn to acquire Receptos shows there is still an appetite for deals, even if it is unlikely that the full-year M&A total will equal that of 2014.

What has made the second quarter look like a poor relation, rather than a return to business as usual for this time of year, is the two monster quarters that came before it. Both owe their outlier status to big deals including Actavis’s $70bn transformation into Allergan and Abbvie snapping up Pharmacyclics. The tail end of last year was also helped by the stampede to complete deals before tax inversion loophole was tightened.

Hey small spender

Nothing demonstrates just how frenetic the last couple of quarters have been better than the 10 biggest deals struck in the second quarter. None of the deals exceeded $10bn, and even adding together Alexion Pharmaceuticals deal for Synageva BioPharma and Endo’s move on Par does not get to the $21bn AbbVie paid for Pharmcyclics.

10 biggest pharma and biotech M&A deals announced in Q2 2015
Deal announced Acquirer  Target Deal status Value ($bn)
May Alexion Pharmaceuticals Synageva BioPharma Closed 8.4
May Endo International Par Pharmaceutical Companies Open 8.1
June Allergan KYTHERA Biopharmaceuticals Open 2.1
May NantWorks IgDraSol Open 1.3
June Cardinal Health The Harvard Drug Group Open 1.1
May Pfizer AM-Pharma Open 0.5
April Celgene Quanticel Pharmaceuticals Open 0.5
May Hyperion Pharma Anti-Rheumatic Pharmaceuticals business of Santen Pharmaceutical Open 0.4
May Juno Therapeutics STAGE cell therapeutics Closed 0.2
May Johnson & Johnson Achillion Pharmaceuticals Open 0.2

But in previous years it has been unusual for individual deals to exceed $1bn, so the fact that five deals in the quarter crossed the threshold is a perfect demonstration of how company valuations have escalated, helped by the biotech bull-run.

Alexion tops the charts with its now chunky looking $8.4bn bid for Synageva BioPharma, which answered investors' questions of what the group was going to do with the cash it had amassed from selling the world's most expensive drug. It was a deal that sparked fresh M&A speculation as to which rare disease company might be next, and also bought into the theory that for some mid-sized companies their long-term survival depends on the stark proposition of buy or be bought.

Endo International came close to matching Alexion with its takeout of Par Pharmaceutical Companies, a consequence of the pressure to consolidate in the speciality and generics space. Meanwhile, Allergan showed it can do bolt-ons as well as big mergers, as it gobbled up an essentially one-product company in Kythera Biopharmaceuticals, maker of double-chin injection Kybella.

Once again big pharma is conspicuous by its absence. Only Pfizer makes the list, and its splashing $500m on AM-Pharma is not exactly big news for the pharma giant, which in fact has done a potential staged take out, by buying a minority stake, with the right to buy the rest of the company if the company is successful in a phase II trial of its acute kidney injury drug.

Leave it to the middle men

A closer look at the industry’s biggest spenders over the last three years, highlights the diminishing influence of traditional companies, with speciality and mid-sized companies dominating the listings.

Unsurprisingly, with its double whammy of Allergan and Forest Laboratories, the former Actavis is leading the charts and it is hard to see anyone overtaking them soon, unless one of the big pharma groups goes back on its word and takes out a close rival. The most likely candidate Pfizer seems at the moment content to do mid-sized acquisitions.

Where big pharma might continue to play is in the arena of asset swaps as companies continue to focus on core activities and seek to cut costs.

The industry's big spenders – three-year M&A bill  
Big pharma
Company   3yr spend ($bn)   3yr deal count   M&A ranking  
Pfizer 19.3 8 3
Novartis 17.8 10 4
AbbVie 17.6 1 6
Merck & Co 13.8 4 9
Roche 11.9 7 10
Total 10 big pharma 93.8 65
Other big drug makers (market cap ≥$20bn) 
Company   3yr spend ($bn)   3yr deal count   M&A ranking  
Allergan 112.3 10 1
Valeant Pharmaceuticals  24.6 9 2
Bayer 17.7 4 5
Perrigo Company 14.7 8 7
Endo International 14.6 8 8
Total 88 non-big pharma 299.5 240

A return to form in the third quarter would push the sector along to record or near-record M&A levels. Even the current run rate would see it easily exceed the mega-merger-mad year of 2009 and give 2014 a good challenge. 

Some of the deal-making motivation may be gone perhaps – tax inversions have gone out of fashion – but defensive M&A is still driving force for middle-tier companies.

A decade in deal making
Year announced Deal Value ($bn) Deal Count
2015 H1 95 121
2014 217 199
2013 80 199
2012 43 198
2011 56 203
2010 109 198
2009 152 171
2008 109 188
2007 71 171
2006 101 153
NB: Data include mega-mergers

The end of the year has the potential for big deals, especially if the Teva-Mylan-Perrigo soap opera reaches conclusion with the signing of a deal. If that is the how the next five-and-a-half months go, 2015 at a minimum should be a memorable M&A year, if not a record-breaker.

To contact the writers of this story email Lisa Urquhart or Jonathan Gardner in London at news@epvantage.com or follow @LisaEPVantage or @ByJonGardner on Twitter

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