Buyers of healthcare consultants following a more focused strategy

02 August 2018 5 min. read

The buyers of healthcare consultants have been transitioning into a more focused merger and acquisition strategy in the past two years, according to a new report. They are closing fewer deals, while instead focusing more on a smaller number of larger deals, and on segments which have strong promise for the future, including life science and data analystics.

According to data released by Equiteq in the report ‘The Healthcare and Life Sciences Consulting Global M&A Report 2018’, the total number of deals in the healthcare segment has fallen to 371 deals, the lowest level since 2013 and down 12% compared to the previous year. This means the number of deals has fallen for second year in a row. However, while M&A activity dipped, average deal sizes rose markedly again, indicating that buyers are focused on larger deals, and hope to build with quality over quantity in their deal making. This trend can also be witnessed in comparison to consulting firms across other industries, where there were 2,500 deals last year, but this was still the second fall in two years.

There were large variations in deal flow among healthcare consulting segments, with stronger activity occurring in spaces at the intersection of strategy, science and analytics. This was supplemented by stronger activity for strategy consulting to life-sciences companies. One area in which demand was particularly high was for market access consulting. Market access describes the continuum of activities surrounding the securing of access, coverage and reimbursement of medicines at prices that balance the need for patient availability and manufacturer profitability. This is in line with the increasingly lucrative pharmaceuticals industry, which saw deal activity surpass $24 trillion last year.

Number of healthcare consulting deals

Geopolitical uncertainty, which has impacted other industries, seems to have had little effect on M&A activity in healthcare and life sciences consulting. Overall, cross -border deals last year accounted for 24% of all acquisitions, rising from 22 % in 2016. North America, which saw 185 deals, accounting for 50% of last year’s M&A in the sector, may have seen fewer cross-border purchases than any other region, although these deals still accounted for almost a fifth of the region’s total. This is likely because the continent hosts the world’s largest consulting market, that of the US, meaning buyers do not need to look as far afield when weighing up acquisition targets.

In comparison, Europe saw 32% of the world’s deal activity, at 118 M&A completions, more than a quarter of which were cross-border deals. The heightened activity in these two areas is largely driven by the continued privatisation of healthcare across the West, moving away from socialised care to a profit-driven care model, or at least one opened up for market access, changing the nature of healthcare reimbursement in the US and Europe, and allowing clients of consulting firms to weigh up the exploitation of new aspects of the market. This is because ‘payer driven value-based’ health purchasing is driving a need for providers and life sciences to improve the provision of cost savings from new therapies, meaning consulting firms in the sector are in high demand to help with these transitions. Patients are also becoming more discerning consumers of healthcare, with a desire to become more involved in the treatment process.

Ramone Param, a Director at Equiteq, said, “These changes in care models and patient expectations are driving demand from providers for advisory solutions regarding investments in technologies and processes that enhance services and reduce costs.”

Number of healthcare consulting deals by region

Similarly, Asia Pacific saw the same proportion of cross-border deals, albeit with a far sparser 42 deals being completed, and a smaller deal value of an average of $13.7 million. Australia and New Zealand saw a total of 10 deals completed last year, for an average of $14 million, and almost a third were cross-border deals.

High demand

Looking ahead, the researchers expect demand for healthcare consulting to remain strong, as key trends continue to drive the demand that has strengthened value in the sector over the past 12 months. Equiteq’s analysts anticipate this to trickle down to M&A as firms seek to bolster their offerings. In the US, uncertain future of the Affordable Care Act is expected to create a boost for consultants that are able to help US providers navigate the new federal efforts to dismantle key elements of the act and court decisions, while also undertaking necessary health plan and organisational changes. In the UK, there are also a variety of issues facing the underfunded NHS, with the increased demands of an ageing population, and a depleted staff amid Brexit labour sourcing fears, meaning consulting will continue to be perceived as a key element of the UK health sector’s future.

On top of this, as the digital and tech segment forecasted for heightened demand to help address these aforementioned issues, this will further boost M&A activity. According to Param, “Across the globe, knowledge-intensive services firms are benefiting from the potential to help clients realise competitive advantages from using rapidly evolving technologies, including connected devices embedded with the latest artificial intelligence and data analytics solutions. In the healthcare sector, these can offer exciting ways for providers, payers and life-sciences companies to gain competitive advantages.”