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China's LSHC M&A, VC, PE, and IPO financing surge set to continue

2021 China LSHC M&A Market Whitepaper explores key trends that will drive dealmaking activity in world's second largest healthcare market

Published: 27 September 2021

In 2020, M&A in China's Life Sciences and Healthcare (LSHC) industry saw robust activity despite substantial economic, business, and social disruptions, with a level of vigor that is only set to continue, according to the 2021 China LSHC M&A Market Whitepaper from Deloitte.

The whitepaper analyzes M&A in China's LSHC industry in 2020 by sub-sectors and the 10 largest deals, revealing the underlying key investment themes, and evaluates PE/VC activity and IPO financing. It also assesses M&A trends in China – now the world's second largest healthcare market – during the first half of 2021.

2020 witnessed a record high in LSHC industry M&A volume, the whitepaper reveals, while China is fast becoming a "destination of choice" for international LSHC investors.

A total of 169 transactions were recorded last year, including mega deals with a value of USD1 billion or more, up 11.2% from 2019's level, while deal value reached USD 21.3 billion. Excluding mega deals, 2020 deal value was up 45.2% from the previous year. Drugs and biotechnology were the dominant sub-sectors, with a combined 106 deals (drugs 58, biotechnology 48), or 62.7% of the total, up 23.3% from 86 in 2019.

In cross-border M&A, there were 37 deals, up from 24 the previous year. Of these, 20 were inbound deals and 17 were outbound. On the domestic front, M&A deal volume edged up to 132 from 128 in 2019.

Addressing PE/VC and IPO financing, the whitepaper notes that deal value reached more than USD13.8 billion in 2020. The drugs and biotechnology sub-sectors also saw an uptick in activity here, with combined deal value up 25.5%, but the medical devices sub-sector was even more sprightly, with deal value surging by 42.4%.

"The vibrant activity of M&A in China's drugs and biotechnology sub-sectors was in large part driven by China's ongoing shift from fast-follow to home grown, novel innovation, from a 'me too' to 'first in class' approach," says Jens Ewert, Deloitte China LSHC Industry Leader. "At the same time, a wave of market liberalization – including listing regimes in Shanghai, Shenzhen, and Hong Kong for pre-revenue companies – drove fundraising activities in a number of sub-sectors, ranging from biotech, biopharma and also medical devices & technology companies."

Turning to M&A activity in H1 2021, the whitepaper shows there were 90 deals worth more than USD9.65 billion in China LSHC during the period, representing increases of 20% in volume and 32% in value. This activity was not confined to traditional sector participants, with 10 LSHC investments by technology firms as digitalization continued to permeate every aspect of the industry, from R&D and production to sales and marketing.

"M&A growth will continue to accelerate, powered by pharma companies' hunt for new, innovative drugs and the ongoing expansion of digital healthcare," says Kenneth Law, Deloitte China Financial Advisory Director. "We also foresee more deals driven by underlying themes like the localization of medical devices; growth in CXO services – where China can lead the world; the creation of branded health services groups through hospital integration; and expanding demand for senior care due to China's rapidly aging population."

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