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Following a record year for deals (in terms of volume and value), this year’s Australian M&A Outlook: Health suggests another flurry of deals will be struck in the healthcare services sector. This is underpinned by increased competition for transactions, new sponsors, available capital, and strong valuations.
Below we present a snapshot of current M&A demand and a hint of what is to come for healthcare services, as well as pharmaceuticals and life sciences. We also suggest some prudent next steps for dealmakers.
Current landscape
Australia remains an attractive destination for global players seeking returns. The local healthcare market offers several fundamental strengths, including a relatively stable regulatory and funding regime, as well as attractive demographics (e.g. ageing population) with good prospects for long-term market growth.
That said, Australia’s health sector is experiencing once-in-a-generation disruptions that are forcing many leaders to respond and reimagine their operations. COVID-19 is the obvious example, adding significant demand and supply pressures. The nation’s health reform agenda (including aged care) is also prompting many organisations to rethink and adapt aspects of care and services. Meanwhile, as Australians adjust to living with COVID-19 in the community, other state health services are expected to resume and return to something resembling business as usual.
This all adds up to a fascinating landscape for dealmakers. During this time of transformation, there will be winners and losers among health organisations. And there are several notable trends for dealmakers to watch out for.
- Investors seeking scale and/or expansion
- More inbound capital is expected
- Private equity spurs demand
- Rising pools of alternative capital
- Digitisation of health and evolving care models
- Creative deal strategies
Investors seeking scale and/or expansion
Corporates and trade players are focused on consolidating their core and capital allocation to support longer-term growth. To achieve this, they are investing to achieve scale and/or expand their services (including new models of care).
More inbound capital is expected
Globally, 2022 promises to be a busy year for dealmakers in the health sector – and that will help generate activity in Australia. Our local health sector remains the subject of inbound interest from overseas trade players and private equity funds. We expect more cross-border M&A in 2022, particularly given that international travel allows potential acquirers to make onsite inspections of assets.
Private equity spurs demand
When it comes to deal value, private equity (PE) continues to lead the way. Since the COVID-19 pandemic began, PE M&A interest has continued, with strong valuations and high levels of activity from sponsors. Notable trends include market consolidation of various specialist outpatient care service providers and healthcare facilities (e.g. diagnostic imaging, cancer care, surgical and specialist hospitals, medical centres, etc).
Rising pools of alternative capital
The appetite for deals now extends beyond the traditional players. In response to Australia’s changing health landscape, new sponsors are seeking opportunities too. The rise of healthcare as infrastructure/social infrastructure, and ‘core plus’ strategies, are increasing deal multiples and competition.
Digitisation of health and evolving care models
The healthcare technology sub-sector was already growing before the pandemic, and now it’s really accelerating. Investor interest and M&A activity has been a natural consequence, and that’s unlikely to change any time soon. The digitisation of health will continue to reshape everything from support systems and infrastructure (e.g. practice management, medical records, telehealth solutions) through to diagnostics and virtual care.
Creative deal strategies
In Australia’s competitive environment, growing numbers of financial sponsors are setting their sights on larger, more complex transactions. To achieve value creation and required returns, acquirers are more open to carve outs and public-to-private transactions.
Market outlook for 2022
Pharmaceuticals and life sciences
Last year, global pharma and life sciences M&A rebounded and all signs point to another year of high deals activity among Australia’s listed pharmaceutical companies. In the local market especially, we expect to see earlier stage companies continuing to raise capital, seek growth/capability, expand into new therapeutic areas, etc.
Following a number of CRO transactions in the past 12 months, we expect continued demand for quality, high-growth businesses. This is especially the case in sub-sectors where financial sponsors have shown a willingness to invest and compete with traditional trade players and/or where there is inbound competition for acquisitions.
Healthcare services
A repeat of last year’s conditions suggests we’ll see a continuation of high valuations from vendors and intense competition among bidders. Healthcare is expected to remain a sector of focus for global and local PE funds, alongside infrastructure investors and traditional trade players who were active over the past year.
This year, dealmaking in the healthcare services market should remain robust, continuing at similar levels until at least the middle of 2022, and possibly even longer. Deal supply and appetite should hold as businesses (and sponsors) look to maximise value and potential buyer pools, ahead of any impacts brought on by potential rises in inflation and/or interest rates.
What's next for dealmakers?
With capital in abundance, there are plenty of reasons for optimism in 2022. Australia’s dynamic market should see high deal volume and valuations, and plenty of competition for targets.
Proactive dealmakers will closely monitor a number of expected and potential disruptions which could delay deals. These include any disruption due to the prolonged pandemic and/or the emergence of new COVID-19 variants. Vigilance should also be applied to any volatility in financial markets and macroeconomic headwinds, such as mounting inflationary pressures, geopolitical tension, potential interest rate hikes, regulatory changes, and the upcoming state and federal elections.
Explore our national findings plus other industry insights as part of this series.
National findings
Deals market ripe with opportunities and buzzing with activity
National findings
In 2021, Australia was a hive of M&A activity across most market sectors. The buzz is continuing in 2022, driven by growth ambitions and access to capital, although geopolitical tensions and possible interest rate rises may temper valuation expectations among bidders.
Financial Services
A buoyant market with many more deals bubbling up
Financial Services
With another wave of deals coming this year, our Australian M&A Outlook: Financial Services reveals what’s brewing beneath the surface. While incumbents will be hunting for growth, scale and capability, and private equity firms will explore various sub sectors of financial services, there may be macroeconomic storms ahead.
To succeed in these conditions, dealmakers, more than ever, will need clarity on their strategic priorities to allow them to act decisively when opportunities arise.
Infrastructure
With competition and capital both high, buyers are thinking outside the box
Infrastructure
This year’s Australian M&A Outlook: Infrastructure signals another busy year ahead. While traditional government privatisation (or ‘capital recycling’) deals remain thin on the ground, funds still have capital to deploy, so more creative transactions and ‘Core Plus’ strategies will dominate. For buyers, that means thinking outside the box.
Energy, Utilities and Resources
ESG is prompting companies and investors to nail their colours to the mast
Energy, Utilities and Resources
This year’s Australian M&A Outlook: Energy, Utilities & Resources (EU&R) underlines just how important environmental, social and governance (ESG) performance has become to both buyers and sellers. More than ever before, ESG is driving deals activity across the EU&R sector (in Australia and overseas). In fact, the global push towards decarbonisation has made ESG the leading factor when determining, protecting, and creating value in many EU&R deals.
Retail and Consumer
Revealed: Australia’s retail and consumer trends that dealmakers need to know
Retail and Consumer
With consumer sentiment still in the recovery phase, this year’s Australian M&A Outlook: Retail & Consumer pinpoints the sub-sectors and trends for dealmakers to watch. In 2022, retail and consumer M&A activity has been somewhat tempered by inflationary pressure (which is likely to push interest rates up faster than expected), ongoing supply chain issues, recent floods in NSW and Queensland, and geopolitical tensions. And while the federal budget provided some short-term economic stimulus, this won’t fundamentally alter the deals landscape.
Technology, Media and Telecommunication
How dealmakers can capitalise on Australia’s red-hot TMT sector
Technology, Media and Telecommunication
Australia’s Technology, Media and Telecommunications (TMT) sector has had its hottest year in deals in a decade, with M&A activity hitting a ten-year high in 2022. This year's Australian M&A Outlook: TMT signals dealmakers are seizing opportunities as the three key trends driving deals – demand for data, digital transformation, and a re-evaluation of traditional asset ownership strategies – remain dominant this year.
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