Global M&A Trends in Health Industries

Portfolio gaps, supply chain uncertainty, changes in policy direction and other fundamental factors are expected to drive M&A by health industries companies in 2025. We believe a stronger US and European deal market, spurred by improving macroeconomic factors and the expectation of lighter US regulation, will lead to accelerated deal values and volumes over the next year.

In the pharmaceuticals and life sciences sector, large-cap pharma companies are looking to acquire innovative late-stage biotech companies to help further differentiate their portfolios and reposition for growth. For example, in July 2024 Biogen acquired Human Immunology Biosciences; in August 2024 Eli Lilly acquired Morphic and in January 2025 Johnson & Johnson announced their proposed acquisition of Intra-Cellular Therapies. 

With Big Pharma facing a significant drop in revenue over the next few years due to imminent patent cliffs, we expect them to undertake acquisitions to fill gaps in their portfolios, focus attention on targeted therapeutic areas and aim for greater innovation in select products. This also includes gaining entry into emerging areas. In addition, we expect them to continue to evaluate divestments of lower-growth or non-core assets that compete for internal management attention and resources. Examples of this divestiture strategy include Viatris’ sale of its over-the-counter business to Cooper Consumer Health, its active pharmaceutical ingredients division to Matrix Pharma Private and its women’s health business to Insud Pharma.

In the healthcare services sector, companies will continue to acquire digital assets or technology companies, including the exploration of AI-enabled services, to deliver a cost-effective high standard of care. Recent examples include Cantata Health Solutions’ acquisition of Geisler IT Services and Cardinal Health’s acquisition of Specialty Networks and its PPS Analytics platform.

Private equity (PE). PE still has significant capital it is looking to deploy and a growing pipeline of potential divestiture candidates, as funds reach the end of their holding period. In the PE community, interest in medtech and digital health companies is rising, as illustrated by the February 2024 acquisition by KKR of a 50% stake in Cotiviti, a healthcare data and technology business, or the proposed acquisition by TowerBrook and CD&R of R1 RCM, a provider of technology-driven solutions to the healthcare industry. This trend will likely last through 2025, with exciting targets expected to come to market. In health services, legislative headwinds, funding cuts, and overall yields below expectations will affect valuations and investment decisions, particularly in clinics and medical service centres or group practices in certain geographies.

Dealmaking obstacles. There is growing optimism that some obstacles impeding dealmaking in recent years are subsiding as global interest rates fall back amid signs in the US that antitrust regulators may adopt a more relaxed stance to mergers in general under the new administration; however, it remains to be seen whether this will indeed be the case, and to what degree it could affect pharma and other healthcare players.

IPO markets. With activity in the initial public offering (IPO) market expected to pick up in 2025, this will unlock additional sources of capital and funding. A number of companies are preparing to go public, both in the US and in other jurisdictions. In late 2024, a growing number of pharmaceutical and life sciences companies confidentially filed their IPO registration documents with the US Securities and Exchange Commission, indicating their intention to go public in 2025. Outside the US, several other companies have announced plans to go public, including Polish medical diagnostic company Diagnostyka, Swiss clinical-stage biotechnology company Topadur and Swiss company Xlife Sciences, which announced plans to separately list its portfolio company, Veraxa Biotech, on the US Nasdaq stock market in 2025.

^{Source: PwC’s 28th Annual Global CEO Survey, January 2025}

Large-cap pharma companies continue to face patent cliffs and gaps in their drug pipelines and will look for M&A opportunities to fill these gaps and achieve their growth plans. For years, investing in time-intensive research with uncertain outcomes and significant time to market was not the priority for big pharma; rather, the strategy has been to fill the pipeline through biotech integrations and bolt-on deals of assets with a more certain study outcome and market potential. Midsize biotech companies with strong revenue potential are likely to receive significant attention in 2025, with those companies with drugs in Phase III trials that could come to market relatively quickly likely to receive the most attention versus those in earlier stages.

Biotechnology M&A trends have evolved significantly since the pandemic. From 2019 to 2020, investments surged by 128%, followed by growth in minority investments from PE firms, which reached a peak in 2022. A shift occurred in 2022, as full acquisitions by strategic players (takeover deals) once again outpaced minority investments and returned to pre-2020 trends. PE firms and other financial investors have subsequently scaled back their involvement in the industry. This shift has influenced the focus of investments: partial acquisitions were primarily directed at companies in the early stages of drug development (Phase I and early-stage Phase II), whereas full acquisitions targeted companies with products in later stages of development (late-stage Phase II or Phase III) or those with recently approved drugs. In contrast, venture capital investments and collaborations in biotechnology generally focus on companies with preclinical products.

Oncology remains a dominant therapeutic area, representing nearly 40% of deals and 45% of funds invested. US companies dominate M&A activity, with 80% of targets and 60% of acquirers based there. Besides PE and large pharma companies, other biotech firms and medium-sized pharmaceutical companies also invested. For example, many of the large pharma companies are adopting a science-led portfolio-driven approach to their pipeline. Although 2024 saw a slowdown in biotech deals, the numbers remain high compared to other subsectors.

Investors might continue to be more cautious, but large pharmaceutical companies still need to expand their portfolios and find new revenue sources, leading to a promising market outlook for the 2025 biotech deal landscape. However, we expect this will be characterised by smaller deals as compared to the record deal values observed in the past (based on individual deal value), while large pharmaceutical companies are likely to access highly valued assets by employing more innovative strategies, such as collaborations, alliances, or joint ventures.  Consequently, and in contrast to the broader M&A market trend of increasing momentum in megadeals, we anticipate seeing less health industries megadeals activity in 2025 than during 2024 and 2023.

• Multinational companies seeking avenues for cross-border investment: Companies are preparing for the possibility of disruptions to cross-border supply chains, and consequently to their revenue, from a range of actions including the potential for increased tariffs in the US and volume-based procurement in China. They are also bracing for the possibility that lawmakers could pursue policies to repatriate drug manufacturing onshore or nearshore. This may result in deals looking to onshore manufacturing activity or find creative partnerships and licensing deals to sell through to international markets such as China. We expect companies to look for M&A investment solutions to resolve cross-border operating challenges.
• The search for capital: Interest rates are beginning to decline globally, stock indices at an all-time high in some markets and signs of life are appearing in the previously quieter IPO market. As such, we expect health industry companies to explore IPO options and pursue additional funding for M&A activity, as well as to secure access to innovative R&D research funnels.
• Alternative deal structures and collaborations: Even with the cost of capital coming down, we observe an increasing number of alternative deal structures and more creative ways of securing access to pipeline assets, through joint ventures, licensing or collaboration models. One recent example is Bayer’s expanding global life science incubator network, in which promising startups can benefit from state-of-the-art facilities and mentorship.
• Divesting non-core and low-growth assets: Companies will continue to strategically evaluate and identify non-core and margin-dilutive assets for divestment, sometimes in response to significant pressure from shareholder activists. This continues a trend we have been observing in the market for some time, highlighted by the recent series of divestments by Viatris and Sanofi noted earlier. The proceeds from the recent large-scale sale of Haleon shares by GSK and Pfizer will offer these companies financial flexibility, allowing them to reduce debt or invest in areas closely aligned with their strategic objectives.
• Theoretical M&A capacity: Divestiture proceeds helped mitigate an approximate 21% decline in theoretical M&A capacity between 2022 and 2024, with 2024 showing some slight improvement over the prior year. We calculated the theoretical M&A capacity of a sample of large pharmaceutical companies, by referencing the viable ratio of leveraged financing in relation to their EBITDA and net debt. In our calculations we applied an industry average of 3x Debt-to-EBITDA ratio to the company’s earnings and subtracted their net debt.

• Acquiring digital avenues to cost-effective value-based care: Legacy healthcare providers will continue to use M&A to access technological innovations to help deliver care, including AI and analytics technology, telemedicine platforms, smart health devices and other software innovations. Faced with continuously rising labour costs and staffing shortages these companies will seek to drive down operating costs while also shifting towards patient-centred, value-based care. Acquiring or partnering with data and analytics and other technology companies will help deliver these digital solutions. 

Global M&A volumes and values in health industries declined between 2023 and 2024 by 20% and 29%, respectively. Pharma and life sciences deal volumes decreased by 18%, but values decreased more significantly by 31% due to fewer megadeals (deals greater than $5bn)—with ten megadeals in 2023, down to two in 2024. Healthcare services deal volumes and values declined by 22% and 21%, respectively.

With an ever-persistent business need to get deals done to stay competitive, health industries companies that proactively build the capabilities to acquire, divest and integrate the right assets will outperform the rest of the sector. As the macro and regulatory environment that has slowed health industries dealmaking in recent years begins to improve, dealmakers should be ready to act quickly on innovative assets when they hit the market. The further development of interest rates should be watched closely as well as policy changes arising from the new US administration. In particular, the anticipated easing of regulations may provide a tailwind to pharma and health industries dealmaking, not just in the US, but also globally. Health industries leaders who are already thinking several steps ahead and can successfully navigate remaining uncertainties will have a significant opportunity in 2025 to use M&A to transform their businesses for success.

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