KPMG Expects 2016 to become Another Record Year for M&A in the Pharmaceutical Industry

Transactions of Historical Proportions Expected in Chemicals and Pharmaceuticals

12.01.2016 -

Globally, mergers and acquisitions at a value of USD 372 billion were recorded in the chemical and pharmaceutical sector in 2015. This amounts to an increase of 74% compared with 2014 ($214 billion). Several major deals in the pharmaceuticals sector were responsible for this substantial increase. Transactions in the pharmaceuticals sector amounted to $298 billion in 2015, well above the previous record year of 2000 ($253 billion), as evident from a KPMG analysis based on figures released by Thomson Reuters. New transactions of historical proportions are also anticipated for the coming year in these two sectors.

Vir Lakshman, head of Chemicals and Pharmaceuticals at KPMG in Germany: "Several pharmaceutical companies have resorted to M&A not only to strengthen their positions in the market but also to refocus their activities."

All indications are that the largest deal announced in the past year will be the largest merger in the history of the pharmaceutical industry and the third-largest transaction ever: the US group Pfizer plans to take over the pharmaceutical company Allergan for $160 billion. At a combined market value of currently $320 billion, the new pharmaceutical giant would surpass the industry heavyweight Johnson & Johnson and reach the size of Denmark's GDP. Based on estimates, this new industry leader could generate annual sales of $65-70 billion with its brands Viagra, Botox and Prevnar 13 as well as leading-edge treatments for Alzheimer's and rheumatoid arthritis. This strategic transaction would enable Pfizer to further consolidate its market leadership in the pharmaceutical industry and demonstrate the future viability of its business model.

German companies are also strategically refocussing their portfolios. In October, Bayer successfully listed its MaterialScience division under the name of Covestro in order to further strengthen its focus on the Life Sciences division. The Merck Group, based in Darmstadt, was given the green light in November for the acquisition of the American laboratory equipment manufacturer Sigma-Aldrich, thus strengthening its focus on innovative research activities. The German pharmaceutical company Boehringer Ingelheim announced in December 2015 that it intends to focus more strongly on the animal health sector. By swapping its consumer healthcare business plus an additional payment of €4.7 billion, for Sanofi's animal health division (Merial), Boehringer will become the second-largest player in this segment.

Vir Lakshman: "These innovative and ground-breaking transactions are having a decisive impact on the transformation of the industry and act as catalysts for further change in the sector."

Chemical Industry also Reports Mega Deal

On a global scale, the chemical M&A deal volume totalled $74 billion in the past year. The total value of the ten largest completed transactions ($51 billion) more than doubled compared to the previous year. The total value of the ten largest transactions − so far only announced in 2015 − even quadrupled compared to the prior year, to $149 billion.

This is due, to a considerable extent, to yet another mega deal. The market leaders in the chemicals industry are, too, experiencing substantial change: Dow Chemical and DuPont are planning a $62.1 billion merger. The two global players will first merge their portfolios and then split into three independent, highly-focused companies in agrochemicals, high performance materials and specialty chemicals.

This mega merger could also lead to a paradigm shift in the agrochemicals sector. The Swiss group Syngenta, for example, attracted a lot of attention in 2015. After rejecting a USD 46 billion bid from the global market leader for seeds, Monsanto (USA), the Swiss crop science company also rejected a $42 billion offer from the state-owned Chinese chemical giant, ChemChina. However, the final word has not yet been spoken in this sector.

Generally, the trend in M&A is away from basic chemicals and towards specialty chemicals. Vir Lakshman: "It is becoming apparent that deals increasingly focus on the higher end of the value chain, particularly the final stages of chemicals processing and specific applications." These high-margin businesses are popular not only with strategic investors, but also attract financial investors looking for opportunities with lucrative yields.