M&A trends in life sciences: The 2022 annual report

The trends

Investors faced major global macroeconomic headwinds throughout 2022. Global macro headwinds from inflation, military conflict, and supply chain disruption weighed on deal-making activity, ushering in a different landscape for life sciences M&A. In 2022, both M&A and venture deal-making declined materially, with overall M&A deal value down nearly 60% year over year to $135B.

Another clear trend was resiliency in M&A activity in pharmaceuticals. Although activity fell across all segments of life sciences in the first half of 2022 (see our previous report), pharmaceuticals became the most active segment in terms of both deal volume and value, with roughly 92 deals driving total transaction value up 15% year over year. In 2023, we expect to see investments in late-stage assets and high cash flow assets in the rare disease space.

The medtech and diagnostics sector was the second most active subsector in terms of deal volume. An influx of capital from COVID testing, as well as an ongoing systemic shift toward prevention over treatment, has resulted in a robust environment for deal-making. That said, the second half of 2022 saw minimal deal-making in the entire medtech and diagnostics sectors, aside from one $15 billion+ transaction. This may be a function of valuations peaking in 2021, with acquirers waiting on the sidelines to see where valuations stabilize.

Meanwhile, digital health and health tech both declined in terms of activity and deal volume in 2022, with activity across the segment down more than 90% year over year to $5.2 billion. We believe there will be a large pullback in both M&A and venture activity in this space in 2023.

What's next?

Following the velocity of 2021, the second half of 2022, by comparison, was lackluster. This could be caused by a combination of global economic factors, such as political instability, supply chain disruptions, inflation, recession fears, and higher interest rates, all contributing to a low performance overall. Nevertheless, the landscape for deal-making continues to be favorable in life sciences.

Pharmaceutical activity picked up in 2022 despite the headwinds mentioned above. Execs reiterated the importance of M&A as part of their overall allocation strategies, while medtech suggests more proactive portfolio management, which could kick-start overall activity in 2023.

We do expect to see an improvement in M&A  and venture activity in 2023, but until the macro environment improves, that activity will be inconsistent at best. That’s not to say there won’t be well-capitalized opportunists hunting for deals more aggressively and opportunistically even as the market backdrop remains uncertain.