Healthcare sector on the verge of further mergers and valuations remain high, according to an executive from Rothschild & Co.
In the dynamic world of healthcare and pharmaceuticals, India is making significant strides in expanding its presence in high-growth segments such as high potency APIs, oncology, and injectables in the B2B sector. This growth is mirrored in the med-tech industry, where Indian companies have gained scale and capabilities, with some global players vacating the consumable side, creating opportunities for larger Indian companies.
The global healthcare sector has witnessed a surge in consolidation activity in recent years, with a focus on vertical integration, operational agility, and market expansion. This trend is evident in sectors like digital health, pharma, and healthcare services. While large-scale data for India is limited, the overall global trend implies that India is also experiencing increased consolidation, particularly in line with the growing life sciences and healthcare markets.
Key drivers of this global consolidation include the high and accelerating M&A activity in healthcare, with deals focusing on vertical integration and expanding service offerings. For instance, the recent merger between Transcarent and Accolade ($621 million) and the merger of Kandu Health and Neurolutions to combine digital health and telehealth solutions are examples of this trend.
Pharma companies are also leveraging M&A to focus on high-growth therapeutic areas like cancer, adopting strategic alliances and licensing agreements. This push towards consolidation in drug development and biotechnology indicates a broader consolidation activity across healthcare-related sectors globally.
Moreover, Contract Development and Manufacturing Organizations (CDMOs) in pharma and biotech are merging to provide end-to-end integrated services, driven by growing demand, outsourcing trends, and digital innovation.
Global corporates are also moving away from conglomerate models towards simplification, including spin-offs and divestitures in healthcare businesses to enhance focus and operational efficiency. This dynamic restructuring reflects the ongoing consolidation in the healthcare sector.
In the US health insurance segment, markets remain highly concentrated, with dominant players like Blue Cross Blue Shield and UnitedHealth Group, indicative of historical and ongoing consolidation effects in healthcare finance.
In India, the domestic healthcare deal-activity in both B2C and B2B segments is being driven by Indian companies. If organic growth is not as strong in certain therapeutic categories, M&A becomes a more attractive option. On the supply side, there is a willingness among Indian families, owners, and promoters to seek ways to accelerate growth, including getting external shareholders or partners.
Capital markets in India are vibrant, making it easier for promoter-owned companies or private equity funds to access public capital for growth. The level of activity in the med-tech and healthcare services sectors, including hospitals and diagnostics, has increased post-Covid.
In the B2C pharma segment, large Indian companies want to bolster their India, domestic branded formulation portfolio to increase their India revenues. Rothschild & Co, a global investment bank, has advised on nine healthcare deals since the Covid-19 pandemic in India. On a global scale, Rothschild & Co advises about 40 to 60 healthcare deals annually.
Customers are looking to diversify supply chains due to the China plus-one strategy. The level of appetite for doing deals in healthcare has increased over time, driven by factors such as the rise of non-communicable diseases, an ageing population, higher disposable incomes, greater insurance penetration, and an inherent growth in the sector.
Valuations in India continue to be high due to the long-term growth potential of the sector, with public market valuations remaining attractive. Where there is a clear pathway to listing, companies are exploring public market listings due to the attractive valuations.
In the pharma B2C segment, the top 10 branded domestic formulations players account for about 45% of the market, leaving a significant number of smaller players. Private equity has been heavily invested in the med-tech industry in India over the last three to four years. The superior financial performance of companies in these sectors over the last five years is driving this increased activity.
In conclusion, while specific Indian market data was not found in the current results, it is reasonable to conclude that India is also experiencing increased healthcare consolidation activity aligned with the global momentum, especially given the presence of rapidly growing healthcare startups, digital platforms, and pharma contract services.
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