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Big pharma's need to tap M&A for growth will persist in 2014, while dealmaking landscape becomes more competitive
Date:1/12/2014

's Firepower Index revealed that big pharma's firepower increased by nearly US$100 billion, or 15%, in 2013. This increase was almost entirely driven by rising equity market valuations, which accounted for more than 90% of the increase.
  • The balance of firepower is shifting: Despite an increase in overall firepower, big pharma's share, when compared to big biotech and specialty pharma, has fallen significantly from 85% in 2006 to 75% in 2012 and 70% in 2013. In addition, as valuations of big biotech and specialty pharma companies outpace those of big pharma, the relative firepower of big pharma (i.e., adjusted for higher target prices) has actually declined by more than 20% over the last year. These shifts should heighten the competition for deals in 2014. Big biotech and specialty pharma have already proven to be significant competitors for assets, with these sectors accounting for more than 80% of M&A activity by announced deal values in 2013.
  • Implications for 2014 and beyond 
    The shifting balance of firepower report identifies several factors and considerations likely to affect M&A in 2014 and beyond:

  • Acquisitions to hedge pipeline disappointments seen as likely: Among the likely big pharma acquirers in 2014 will be those with growth gaps who decide to hedge potential disappointments in product launches and R&D.
  • Divestitures to pursue growth targets may be seen: Given the rise in target valuations, some big pharma companies may turn to divestitures to boost firepower in 2014. EY estimates that approximately 12 divestitures by big pharma - principally from non-core businesses - could be worth up to US$100 billion in incremental firepower that could be redeployed for M&A.
  • Use it or lose it?: For companies whose firepower is expected to remain the same or shrink, "use it or lose it" may become the focus - driving a surge in M&A activity.
  • "With both de
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    SOURCE EY
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