180 Acquisition International - Global Excellence 2021 6 Acquisit on International - Issue 1 2021 Nov20568 Best Healthcare M&A Strategists wide range of motivations drive M&A transactions. Some deals are completely defensive where, for example, a company buys a customer that it fears losing, or a company buys a competitor to prevent it from gaining market share. Other deals are financially motivated by the arbitrage to acquire EBITDA from a largely unrelated business at a low multiple to be combined into a larger EBITDA pool where a higher multiple will be applied. But, the M&A transactions with the greatest sustained impact are driven by compelling strategic visions. These are the hallmark of Health Advances advisory assignments. M&A has become extremely popular in the healthcare industry for two reasons: Abundant access to capital • The stock market is setting new record highs • Balance sheets are burgeoning with record levels of cash • Interest rates have fallen to historic lows making debt attractive Organic growth is increasingly difficult and risky • Wall Street’s intense focus on companies’ profit margins makes the large and sustained internal investments – in R&D and/ or sales & marketing - required to enter new markets and/or rejuvenate product lines difficult to justify. • The healthcare industry is inherently risky and the “trifecta” of technical breakthroughs, regulatory approvals and insurance coverage rulings - particularly for true breakthrough products and services - is often evasive. These very same trends have led company valuations to record highs so that M&A transactions have become high stakes gambles. Within the healthcare industry, Health Advances has become a trusted resource for M&A strategy and commercial diligence. Focused exclusively on the healthcare industry for nearly 30 years, Health Advances teams of scientists, clinicians and businesspeople – supported by the industry-leading knowledge management infrastructure - help senior executives anticipate and navigate the strategic ramifications of transactions. The firm has earned the recognition and respect of top tier investors, bankers and seasoned executives for rigorous and objective insights and recommendations. This award is a testament to that reputation. Truly strategicM&A is extremely powerful as it has amultiplicative effect. As shown in the bar chart, not only will a combined company benefit from the simple addition of the acquisition’s growth prospects, but well-timed acquisitions will also benefit from accelerating growth due to predictable trends. Often, most significantly, acquisitions bring new skills or customers to the client organization so that the base business also grows. As a result, 1+1 do not only equal 2 or 3, but perhaps 4 or 5! An example would be a medtech open surgery company that acquires a single specialty laparoscopic instrument company compatible with robotic procedures. The value multiplies as the buyer applies the new miniaturization capabilities to its base business across multiple clinical specialties. A As Health Advances evaluates the strategic potential of acquisitions, it anticipates the trends that will either accelerate or hamper the growth of the combined company. Some of the trends Health Advances is currently monitoring include: • Convergence of technologies – increasingly drugs, devices, diagnostics, and software are combined into fuller solutions to heath conditions. • Disintermediation of traditional sales and distribution channels – manufacturers are boldly forward integrating to provide fuller solutions by interacting more directly with patients and their families. With the ability to reduce inefficiencies and influence clinical outcomes, pioneers will sign risk-based contracts. • Migration to alternate sites of care – the COVID pandemic has accelerated care migrating from the high cost hospital setting to less expensive settings like ambulatory surgery centers, physician offices and home care. • Increasing consumer influence – as co-pays and deductibles increase and digital solutions provide easier access to health information, patients and their families are becoming more involved in diagnostic and treatment decisions. As Health Advances advises management teams on their M&A strategies, it seeks to find the intersection of these types of relentless trends with the clients’ base businesses as well as adjacent businesses (e.g. adjacency B below). The resulting Venn diagrams highlight potent growth vectors that can be confidently launched by pulling the trigger on carefully evaluated M&A targets. Contact: TransactionsPractice@healthadvances.com
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