Strong valuations and balance sheets continue to provide M&A momentum into 2018. Successful US tax reforms would provide further impetus to the M&A market.
highlightS
M&A activit y stable in both sectors, despite a decline in deal value.
life sciences M&A is driven by oncology and the shift towards precision medicine and digital health. in chemicals, consolidation in agrochemicals is ongoing and companies are keen to invest in technology start-ups as the potential of digitalization becomes increasingly apparent to the chemicals industry. in both sectors, US and China were the most active countries.
KPMg’s Deal thermometer indicates that the environment for M&A activity will remain moderately strong in both life sciences and chemicals.
De Al therMoMeter 2017
KPMG’s Deal Thermometer signals the environment for M&A deals in chemicals and life sciences. It combines the appetite for deals (changes in forward P/E ratios) with the capacity to fund deals (changes in Net Debt/ EBITDA multiples). ‘Hot’ signifies an environment conducive to deal-making.
Life Sciences
life sciences deal activity remained stable, despite a decline in deal values. life sciences companies are investing in providers of digital solutions. Collaborations are an attractive alternative to M&A in the current environment of high transaction multiples. US and China were the most active countries.
De Al FoCUS Are AS
the US dominated the FY2017 M&A landscape by participating in all of the top 10 announced deals. overall, deal activity slowed down during the second half of FY2017, with only one transaction in the top 10 announced deal list. the $11.9 billion acquisition of Kite Pharma, inc. by gilead Sciences, inc. is driving further consolidation in oncology. Novartis Ag’s $3.9 billion acquisition of Advanced Accelerator Applications S.A. (AAA), is a further example. AAA develops, produces and markets molecular nuclear medicines including the cancer treatment lutathera, which has already been approved in europe and is under review in the U.S.. With AAA 2016 sales of €109 million, the transaction will bolster Novartis’ oncology portfolio.
Coll ABor AtioNS
Sanofi S.A. signed a research collaboration and global exclusive licensing agreement with Belgian Ablynx NV, a clinical-stage biopharmaceutical company, focussing on the development of nanobodies for the treatment of immune-mediated inflammatory diseases. the deal includes an upfront payment of €23 million and research funding of approximately €8 million. Ablynx could receive development, regulatory and commercial milestone payments amounting up to €2.4 billion, plus low double-digit royalties.
Personalized medicine
Bayer Ag announced a cooperation with loxo oncology, inc., a US-based biopharmaceutical company, with a focus on selective medicines for patients with genetically defined cancers. loxo exercises genetic testing to derive patients’ treatments. loxo’s larotrectinib (loXo-101) and loXo-195 are under investigation for the treatment of patients with cancers with tropomyosin
* Number of announced deals
Sources: Thomson One, KPMG Analysis
receptor kinase (trK) gene fusions. tumor genetics rather than tumor site of origin define the treatment for patients, a further step towards precision medicine. loxo will receive an upfront payment of $0.4 billion which could increase up to $1.6 billion depending on regulatory and commercial milestones.
roche holding Ag strengthened its oncology portfolio in precision medicine through its recent $1.7 billion acquisition of US-based ignyta, inc., which aims to test, identify and treat patients with cancers harboring specific rare mutations. ignyta’s entrectinib, currently in Phase ii trials, targets cancer tumors that harbor roS1 or NtrK fusions.
Konica Minolta, inc. announced the $1 billion acquisition of Ambry genetics Corp. the transaction will add Ambry’s innovative genetic testing solutions to Konica’s portfolio, complementing its advanced imaging technology.
Sources: Statista, KPMG Analysis
FIG ur E 3: TOP CO u NT r IES IN LI f E SCIENCES M&A 2017*
uS CHINA JAPAN
FIG ur E 4: GLOBAL MA r KET v OL u ME f O r PE r SONALIZED MEDICINE
CoNSoliDAtioN iN CoNSUMer heAlth
Ageing populations and health-conscious consumers are driving demand in the consumer health market. C.h. Boehringer Sohn Ag & Co. Kg and Sanofi S.A. closed their $12.6 billion swap in January 2017. this enabled the two companies to leap-frog their competitors in the consumer and animal health markets. recently, Nestlé S.A. complemented its Consumer Care portfolio by announcing a $2.3 billion acquisition of Atrium innovations inc., active in the area of nutritional health products. garden of life, Atrium’s largest brand is ranked as one of the top brands in the natural supplement industry in the U.S.. Atrium’s 2017 sales are targeted to hit the $700 million mark. this consolidation wave is expected to continue.
ChiNA SUPPlY- SiDe reForMS DriViNg CoNSoliDAtioN
Supply-side reforms in China are driving local distributors to upgrade their capabilities and triggering new consolidation waves within the domestic pharmaceutical distribution sector. Shanghai Pharmaceuticals holding Co., ltd. announced the $1.2 billion acquisition of U.S.-based Cardinal health inc.’s China business, consisting of pharmaceutical and medical products distribution in the region. the acquisition of a Chinese top 10 player enables Shanghai Pharmaceuticals to greatly expand its network coverage.
DigitAl he Alth
life sciences companies are not only seeking collaborations within their sector, but are also expanding into digital health. roche holding Ag announced the acquisition of Viewics, inc., a software company focussed on laboratory business analytics, enabling laboratories to make faster data-driven informed decisions on their operations and processes.
Mazor robotics ltd. and Medronic PlC announced the next stage of their strategic partnership. Medtronic receives the exclusive rights for worldwide distribution of the Mazor X system, a transformative platform for spine surgeries.
Johnson & Johnson, through its german subsidiar y Johnson & Johnson Medical gmbh, announced the acquisition of german software company Surgical Process institute Deutschland gmbh (SPi), one of the leading specialists for standardization and digitalization of surgical workflows. SPi’s offerings enable reduced surgery variability and time spent in the operating room through innovative software solutions.
CAPitAl iNDe X
the publication Digit alization in life sciences from KPMg in germany provides a broader insight into the effects of digitalization on the life sciences industry. Digitalization enables companies to achieve superior patient outcomes while also providing care in a cost-effective manner.
MSCi World Pharma, Biotech & life Sciences index experienced a 13.9% growth, mainly driven by Johnson & Johnson (20.6%) and Novartis Ag (9.8%).
FIG
FIG
FIG
Sources: Euromonitor, KPMG Analysis
Life Sciences
the deal value of the global top 10 announced deals in 2017 was
$ 106.2 billion
1 All numbers are in uS$ billion Financial investors are italicized Figures in green are estimated values
Sources: Thomson One, KPMG Analysis
C hemicals
Chemicals M&A saw a stable number of deals in 2017, although deal value decreased by more than 50%. Deals are spread across the value chain. Consolidation in agrochemicals is ongoing. Chemical companies strive for cooperations to take advantage of digitalization. China and US were the most active countries.
AgroCheMiCAlS
transactions arising from the global consolidation in agrochemicals continued into 2017. global megatrends are fuelling strong interest in these assets. the world population is projected to reach 10 billion by 2050, which is expected to translate into approximately 30% higher food requirements.
Herbicide business
BASF Se announced the $7 billion acquisition of significant parts of Bayer Ag’s non-selective herbicide and seed businesses. through the transactions, BASF intends to broaden its agricultural solutions portfolio, meeting an extensive range of farmers’ needs. the assets to be acquired generated sales of €1.3 billion, with an eBitDA margin exceeding 25% in 2016. the lion’s share of BASF’s future Agricultural Solutions segment’s 2016 pro-forma revenues of approximately €6.9 billion were generated in North America.
Syngenta Ag and Adama Agricultural Solutions ltd. announced the divestment of their crop protection portfolio to Nufarm limited for $0.5 billion. off-patent crop protection formulations in the herbicides, fungicides and insecticides area are the main transaction components.
DigitAliZAtioN DriViNg CooPer AtioNS
BASF entered into a cooperation with the european Space Agency to evaluate how real-time satellite-derived data can be efficiently used to optimize farming. the cooperation aims at offering digital tools and services that assist farmers to increase efficiency.
Bayer Ag and robert Bosch gmbh have signed a three-year collaboration agreement with a view to increasing efficiency in the application of crop protection products. this combines Bayer’s expertise with geographical information systems and Bosch’s research in sensor technology, smart analytics and selective spray systems.
A deeper dive into the topic of digitalization in the chemical industry is provided in the publication Time to bloom from KPMg in germany. the study indicates that substantial benefits can be achieved through developing proximity to customers using digital platforms and tools.
FIG ur E 13: TOP CO u NT r IES IN CHEMICALS M&A 2017*
Sources: Thomson One, KPMG Analysis
CHINA GErMANY
r ANCE ruSSIA u S CANADA uK INDIA S. KO r EA JAPAN
FIG ur E 14: DATA AND ANALy TICS IN CHEMICALS
Source: KPMG Publication “Time to bloom”
How do you intend to acquire core competencies in data and analytics over the next ten years?
FIG ur E 12: C r
FiNANCiAl iNVeStorS
Stone Canyon industries, llC led the way by acquiring Mauser group NV for $2.3 billion, expanding its packaging portfolio. MBK Partners ltd. followed by announcing the $1.8 billion acquisition of Daesung industrial gases Co., ltd., strengthening its investment focus on greater China, Japan and Korea. Both deals already completed in 2017.
SK Capital Partners, lP, a private investment firm focussed on specialty minerals, chemicals and pharmaceuticals, announced the acquisition of the fire safety and oil additives business from israel Chemicals ltd. for $1 billion. the business generated sales of $245 million and an operating income of approximately $79 million in 2016.
CAPitAl iNDe X
Chemical share prices experienced continuous growth in 2017. Bloomberg World Chemicals index outperformed the MSCi World index by eight percentage points.
FIG
FIG
BASiS oF DAtA PrePAr AtioN
Values and volumes used throughout the report are based on announcement date as provided by thomson reuters’ database thomson one as of 31 December 2017, extracted up to and including 2 January 2018, and supplemented by additional independent research. Data available after publication date is incorporated in subsequent editions. this edition presents revised data for the years 2011 to 2016. this report includes disclosed and undisclosed values for M&A transactions including minority stake purchases, acquisitions of remaining interest, and recapitalizations and it explicitly excludes self-tenders and spinoffs. the published numbers of deals and deal values are based on the analysis of target companies which operate in the following subsectors:
Life Sciences
Medicinal chemicals & botanical products
Pharmaceutical preparations in vitro and in vivo diagnostic substances
C hemical and non-metallic mineral mining, except fuels
F ertilizers and agricultural chemicals
i n dustrial gases
S pecialty chemicals
C hemical wholesale
P lastics and rubber components
KPMg’s Deal thermometer is based on financial dat a as provided by S&P Capital iQ of public companies in the same sector as noted above with a market capitalization at quarter end of at least a $1 billion. For the life sciences sector, this comprises 304 public companies. For the chemical sector, this comprises 203 public companies.
All figures in this report are shown in US Dollars ($) unless otherwise stated.
Sources
online databases: thomson one (thomson reuters)
—Mergermarket
S&P Capit al iQ
—Bloomberg evaluate ltd.
Various companies’ press releases
Imprint
Publisher
KPM g Ag W irtschaftsprüfungsgesellschaft te rsteegenstrasse 19 - 23
40474 Düsseldorf g e rmany
Contact
Vir Lakshman * Partner, Deal Advisory h e ad of Chemicals & Pharmaceuticals, g e rmany t + 49 211 475-6666 vlakshman@kpmg.com
Christian Klingbeil Partner, Deal Advisory – Valuation t +49 89 9282-1284 cklingbeil@kpmg.com
Christian Specht Partner, Deal Advisory – M&A t +49 69 9587-2240 cspecht@kpmg.com
Authors
Rita Duran
Senior Manager, Deal Advisory Chemicals & Pharmaceuticals, KPM g in g e rmany
Fabian Dingel Chemicals & Pharmaceuticals, KPM g in g e rmany
Laura Fritsche Chemicals & Pharmaceuticals, KPM g in g e rmany
