Accelerating the future: driving growth and innovation through M&A and divestments

Our tenth and final prediction from our Accelerating the future: Life Sciences and Healthcare predictions 2030 report is on Life sciences mergers and acquisitions (M&A), divestments and restructuring. We anticipate that the uptick in M&A activity seen in 2024 will continue over the next five years and that by 2030 M&A will be a critical part of every life sciences company’s corporate strategy. Moreover, that divestments of non-core assets will be a critical element for every life sciences company, including pharma, consumer health and MedTech, in proactively managing their product portfolios, unlocking growth and embracing innovation. In this week’s blog, we summarise the insights from this prediction to help life sciences companies to rethink their M&A strategies up to 2030.

M&A as a driver for growth, industry consolidation and innovation

By 2030, M&A activity has rebounded strongly, driven in part by a step-up in investor activism (see Figure 1). For example, biopharma has used M&A to replenish their portfolios and offset the ‘loss of patent exclusivity’ experienced during the 2020s, particularly acquisitions of late-stage development/early-stage commercialisation assets. Moreover, the adoption of AI technologies has disrupted all aspects of the life science value chain. For example, most pharma companies have partnered with AI-for-drug discovery companies and integrated their technology platforms into their approach to clinical development. Indeed, partnerships between life sciences and technology platform players have become a crucial investment strategy helping companies acquire skills in advanced analytics and GenAI enhancing pharma companies’ approach to M&A.

Divestments of non-core assets, alongside implementing operational efficiencies and streamlining portfolios, has released capital to invest in new products, driving growth and helping to restructure the business. M&A activity has also led to consolidation across the industry. For example, mergers of equals, spin-offs and portfolio consolidation have led to the rise of a dynamic consumer health industry; growing M&A activity has moved the dial for MedTech from point solutions to end-to-end workflows; and biotech companies have focused increasingly on partnerships with larger players, in order to access resources, expertise and new markets. Dealmakers have also prioritised their M&A activity on assets that blur traditional sector boundaries between industries (such as companion diagnostics, subscription-based healthcare and Software as a Medical Device).

Life sciences companies have also searched for assets that can help improve their ESG profile and are willing to pay a significant premium for those that have strong ESG credentials, recognising this as a driver for increasing value. For example, Deloitte’s 2024 ESG in M&A Trends Survey showed that companies are increasingly incorporating ESG considerations into their M&A strategies, with 63% of LSHC corporate respondents having previously decided not to proceed with an acquisition due to concerns with its ESG performance and the same proportion saying that their organisation was willing to pay a premium (3-6%) for an asset with a positive ESG profile.¹

Figure 1. Impact of M&A and divestments on life sciences growth and innovation in 2030

To realise our prediction, life sciences companies will also need to address the cross-cutting constraints that impact our predictions (having the right skills and talent, the need for new funding and business models, a proactive approach to the evolving regulatory landscape and ensuring strong cyber security and data governance is in place). The prediction can be realised by life sciences companies turning the constraints into enablers by:

• acquiring or developing AI and GenAI skills, to augment their valuation, due diligence, modelling and compliance skills, enabling companies to assess potential targets and external innovations quickly and help them compete effectively in deal-making
• building on private financiers’ increasing appetite for investment in life sciences, investing in new business models and engaging with private equity companies across both the buy and sell side especially in assets that can potentially cure or prevent diseases
• investing in regulatory specialists to co-manage M&A deals from early in the negotiations through to monitoring compliance across the whole M&A process, to ensure regulators gain more confidence in the deal
• implementing strong cyber defence strategies to proactively monitor for violations and weaknesses and continually maintain security of data management systems to avoid decreased valuations and potential loss of intellectual property due to data breaches. During due diligence and deal negotiations for M&A, IT systems and apps/services are also regularly assessed for cyber risks (Cyber Reconnaissance) and mitigations implemented.

How can GenAI accelerate this future?

GenAI can be used to make more effective use of the massive amount of data insights and benchmarks from past M&A and divestiture transactions. It can analyse the large diverse datasets that are available across the life sciences industry, including data and information from scientific literature, clinical trial data, and patent filings, to identify promising new therapies or healthcare technologies as targets for M&A deals. Moreover, GenAI can substantially contribute to the speed, efficiency and accuracy of due diligence and valuations of potential deals reducing manual effort and costs and accelerating deal timelines. Further potential applications include:

• developing more precise valuation models for drug pipelines, medical devices and healthcare technologies, helping mitigate uncertainties inherent in life sciences R&D
• identifying potential synergies in research capabilities (including human resources), drug development pipelines, manufacturing processes, and sales and marketing infrastructures, maximising the value created through the M&A transaction
• generating data-driven insights using data from the company’s financial health, market positioning and growth trajectory, to develop successful deal strategies.

Not withstanding these potential benefits, the completeness and accuracy of, and any bias in the data present a risk. There are also significant risks around cybersecurity and data privacy when undertaking M&A. It is crucial therefore for companies to try and mitigate thes risks in exploring more widespread use of GenAI in M&A deals.

Conclusion

In the next five years, M&A and divestitures will be a critical tool for driving innovation, ensuring long-term growth, and ultimately delivering innovations faster to patients and increased the value of the company to stakeholders. As we look towards 2030, companies that can effectively leverage data-driven insights, develop agile deal-making capabilities, and harness the power of AI will be best positioned to capitalise on the opportunities presented by fast scientific and technological innovations. By fostering a collaborative ecosystem and leveraging strategic partnerships and alliances to ensure long-term, sustained growth, healthcare and life sciences companies have every opportunity to thrive.