Who splashed the cash at the top of the market?

Those on the acquisition trail last year benefitted from a slight dip in average deal values, an EP Vantage analysis shows, as rocky equity markets knocked valuations from their 2014 peak. Data collated so far this year points to a further drop.

As valuations retreat towards what many consider more rational levels, a look at which companies were the most aggressive buyers over the last three and a half years ranks Allergan, Shire and Teva as the biggest spenders. Their investors will have to hope they do not come to rue splashing the cash at the top of the market (see tables below).

The table below slices EvaluatePharma M&A data a couple of ways, to capture the average price paid for pharma and biotech companies over the last decade – the analysis excludes medtech and diagnostic companies, focusing only on firms developing human therapeutics. It also removes the very big deals that skew the numbers upwards.

Average deal values
Year announced  Avg for $250m+ deals ($bn) (excludes megamergers*)  Avg for deals ≤ $20bn ($m) 
2016 H1 1.8 703
2015 2.3 691
2014  2.4 838
2013  1.7 635
2012  1.3 366
2011  1.4 420
2010  1.8 413
2009  1.1 386
2008  1.7 507
2007  2.1 567
*Excludes Shire-Baxalta; Teva-Allergan; Actavis-Allergan; Novartis-Alcon; Pfizer-Wyeth; Merck-Schering; Roche-Genentech

The analysis clearly shows the plummet in valuations after the banking crisis and credit crunch and the resurgence of the most recent bull run, which peaked in 2014. Our analysis yesterday showed that in 2014 a record $220bn was spent on M&A deals that year, without any uptick in volume (M&A – Value of deals looks healthy but number meagre, July 11, 2016).

So far this year it looks like average deal values will end up around 2013 levels. It is notable however that US bellwether the Nasdaq Biotechnology Index remains substantially higher than in 2013. So while any further decline in deal activity would act to keep a lid on valuations, bid targets still have the relative health of the equity markets to point to.

This is widely expected to weaken in the coming six months, of course, and companies currently considering an expensive acquisition will be cognisant of this. Sanofi, for example, will no doubt be feeling strengthened by the jittery conditions of equity markets, knowing that the value of their target, Medivation, will slump should their bid fail. And that the longer they wait, deteriorating macro conditions will increase the pressure on the US biotech’s board.

Big spenders?

Saying that, Sanofi’s aggressive pursuit of Medivation is actually a rare example of big pharma seemingly being prepared to entertain bull market valuations – and it is far from guaranteed that the French pharma giant will actually end up paying top dollar (Sanofi and Medivation make peace, but there’s no deal yet, July 6, 2016).

The world’s biggest drug makers have been more interested in dealing with each other over the last few years – the Glaxo-Novartis asset swap and the AstraZeneca-Bristol-Myers diabetes deal for example – or focused on more structural reorganisations, such as Pfizer’s move to beef up its generics arm with the $17bn acquisition of Hospira.

There are exceptions of course: AbbVie’s surprise $20.8bn swoop on Pharmacyclics or Roche’s $8.3bn takeout of Intermune, for example.

The industry's big spenders – January 2013 to June 2016 M&A bill  
Big pharma   
Company   3.5yr spend ($bn)   3.5yr deal count   M&A ranking  
AbbVie 30.6 3 4  
Pfizer 23.9 11 5  
AstraZeneca 19.8 12 7  
Novartis 17.2 9 9  
Merck & Co 16.7 9 10  
Total 11 big pharma    151.7 84 -
Other big drug makers (market cap ≥$20bn)
Company   3.5yr spend ($bn)   3.5yr deal count   M&A ranking  
Allergan 113.0 14 1  
Shire 48.9 11 2  
Teva 47.6 8 3  
Valeant 23.4 9 6  
Bayer 17.7 5 8  
Total 18 other drug makers  310.7 104 -

The table above shows that Allergan, Shire and Teva all spent more than any big pharma company in the last three and a half years. Spending by the industry’s cohort of $20bn-plus drug makers on M&A deals was double that of big pharma in the same period.

The number of deals struck by each group was not so different. Big pharma was content to do smaller M&A deals while valuations were sky high and it will be interesting to see whether a retrenchment can reignite their interest.

What will be seen is the end of the consolidation spree among speciality drug makers. Previously enthusiastic buyers like Valeant and Endo have been removed from the scene by financial crises, and should Teva finally manage to close its purchase of Allergan’s generics business, it will certainly have its hands full.

The last couple of years have been the exception rather than the rule in terms of M&A activity, which could not continue at the same pace for long. The question for dealmakers is now one of value and whether sky-high price tags can be sustained. This analysis suggests the decline has already begun. 

To contact the writer of this story email Amy Brown or Joanne Fagg in London at [email protected] or  follow @AmyEPVantage or @JoEPVantageon Twitter

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