2015 1st Half M&A Activity | Part 2

2015 1st Half M&A Activity | Part 2

By Kim Levin

September 15, 2015

Middle Market Business Insights – M&A Activity

Two North American industry segments that continue to be impacted by M&A activity are healthcare and manufacturing.

Healthcare M&A in 2015

M&A activity in the Healthcare space continues to be strong in 2015.
  • According to data published by Factset, there were 458 healthcare transactions in the U.S. in the first half of 2015 with an announced aggregate deal value of USD $190.54 billion.
  •  For the same period in the same geography in H1 2014 there were 487 transactions but announced deal value was lower at USD $118.73 billion.
  • This feverish M&A activity has been led in part by drugmakers seeking new treatments that can replace the billions of dollars in sales they will lose when their existing patents expire.
  • According to data from Thomson Reuters, M&A transactions targeting biotech and pharma companies thus far in 2015 have reached $59.30 billion, a 94 percent increase over the same period a year ago and the highest volume for this stage in any year since 2009.
  • According to data from international consulting firm PWC, the sectors lagging behind the overall volume trends from 2014 include Home Health (-16%), Hospitals (-8%), and Labs, MRI & Dialysis (-67%).
  • Private equity has remained active in the space with particular focus on Healthcare Information Technology (HIT), Revenue Cycle Management and other insurance related businesses according to data from Bain Consulting.

Healthcare M&A Outlook

For the remainder of 2015 Obamacare, corporate cash reserves and easy credit are all expected to contribute to continued heavy activity in the healthcare industry. According to a report from international consulting firm KPMG, the biggest driver for healthcare sector M&A for the remainder of 2015 will likely be the Affordable Care Act, but a jump in patent expirations for many drug companies is also projected as a potential driver of merger activity for that part of the industry.


Domestic manufacturing has experienced a strong resurgence in 2015, becoming a meaningful component of U.S. economic growth.

  • According to data from industry tracker Factset, there were 1,170 M&A transactions in the manufacturing sector in H1 2015 in the U.S. with an aggregate announced value of USD $289.19 billion.
  • In 2014 there were more transactions (1,283) for the same period in the same geography, but the aggregate announced value was almost 13% lower (USD $256.83 billion).

Below are several of the trends that are making manufacturing M&A such an appealing strategy in 2015.

  • A Strong Macro Picture – While there is and growing undercurrent that the U.S. economy will slow within the next year or two, its strength over the past few years has been bolstered by manufacturing in the U.S. A number of large companies have returned some production to the U.S., including Whirlpool Corp. (hand mixers); Caterpillar Inc. (excavators); and Ford Motor Co. (medium-duty commercial trucks).
  • Total manufacturing output topped out at around $2 trillion in 2013, according to the National Association of Manufacturers, and growth — fueled by strong domestic demand that in turn enabled U.S. factories to override the slowdown in global markets – continued strong in 2014 and into 2015.
  • Manufactured Exports Strong – In 2014, exports to the top buyers of U.S. manufactured goods – Mexico, Canada, China and Japan – increased significantly. While this trend could be tempered by the continued strength of the U.S. dollar, which makes things more expensive for importing U.S. goods, many U.S. manufacturing companies are increasingly realizing the benefits of producing and selling domestically. As a result, many companies are setting up manufacturing sites close to developers and suppliers to reduce the time from design to production and sales.
  • Low Manufacturing/Labor Costs in the U.S. – According to research from the Boston Consulting Group (BCG), the competitive edge of a number of countries that were traditionally regarded as low-cost manufacturing bases – China, Brazil etc. – has eroded significantly over the last ten years.

Impact of Commodity Pricing on the Oil and Gas Sector

An area that suffered as a result of volatile commodity pricing was the oil and gas sector. The oil price as per the WTI benchmark started the year at $52, dipped into the $40 range early and then clawed back up near $60. The result was a tepid M&A market.During Q1 2015 the value of global upstream oil and gas M&A deals reached $7.1 billion, a 79% decline as compared to the same period in 2014 and an 85% drop as compared to the average value per quarter since the start of 2009.

The outlook for M&A activity in the space is mixed as companies that have taken a significant financial hit may seek M&A as the answer to satisfying highly leveraged balance sheets. Conversely, similar to the economic downturn in 2008, companies that may have been exit-ready in 2014 are now patiently waiting for a bottom line recovery before seeking a transaction.

Overall M&A Outlook

M&A activity for the remainder of 2015 will depend on a number of factors, including the following:

  • Economic Conditions: The US Federal Reserve’s decision to keep interest rates low has substantially lowered the cost of M&A funded by debt. For companies with limited growth opportunities, acquisitions are a natural path to bolstering market share.
  • Private Equity Impact: Many private equity firms are looking to sell portfolio companies acquired before the financial crisis as debt obligations reach maturity. Conversely, “dry powder” (unspent capital investors have committed for investing over a period of time) remains at near-record levels. This will play a significant role as private equity buyers look to put that money to work.