Market Scenario M&A in Chemicals and Life Sciences Catch Up in Second Half of 2020: KPMG

Editor: Ahlam Rais

In 2020, the number of merger and acquisition deals in the chemical and life sciences sector increased; however, the transaction volume of the deals fell drastically in the first half of last year. In the second half of the year, it was revived, according to KPMG.

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The main driver of the lower volume was the absence of blockbuster deals above 10 billion dollars.
The main driver of the lower volume was the absence of blockbuster deals above 10 billion dollars.
(Source: Deposit Photos)

Berlin/Germany – Last year, the transaction volume of announced mergers and acquisitions in the life sciences and chemicals sectors fell to 353 billion dollars. Compared to 2019 (606 billion dollars), this is a minus of 42 per cent. Yet the number of deals increased: from 3,735 to 4,140, according to a KPMG analysis based on Thomson Reuters data.

Christian Klingbeil, Sector Head Deal Advisory Life Science at KPMG in Germany: "After the transaction volume in the chemicals and life sciences sectors had fallen drastically in the first half of the year, catch-up effects and the focus on strategic measures for portfolio optimization ensured a revival in the second half. Despite the ongoing Covid-19 pandemic and global recession, deals amounting to around 76 % of the annual deal volume were announced in the past six months. This performance illustrates that M&A players view macroeconomic conditions as stable, so there are plenty of takeover opportunities in the positively buoyant capital markets."

Life Sciences: Blockbuster Acquisitions despite Covid-19 Pandemic

Even though the announced transaction volume of the life sciences industry slumped by 39 % compared to the record year of 2019, a clear recovery is evident in the second half of the year. Since the end of the first half of the year, the cumulative transaction volume has quadrupled to 285 billion dollars. At the same time, the number of announced deals even exceeded that of the previous year (2,768) with a total of 3,161.

The rapid recovery of M&A activities in the life sciences sector is due on the one hand to four large blockbuster transactions in the second half of the year in the fields of immunology, oncology and cardiology. On the other hand, biotech companies contributed enormously to the upswing, as they played a key role in the fight against Covid due to the development of a vaccine.

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The development of a vaccine has given them a key role in the fight against Covid-19, making them attractive takeover candidates and helping the entire sector to achieve higher valuations. This development was additionally strengthened by an increased interest of private equity companies in biotech activities.

Christian Klingbeil: "2020 was certainly a year with unprecedented challenges. Triggered by the Covid-19 pandemic, major economic uncertainties have affected the transaction landscape. Nevertheless, with the major acquisitions of Varian Medical Systems and Asklepios Biopharmaceutical – with German participation by Siemens and Bayer, respectively – we see that the road to recovery has already begun in Germany as well. Therefore, we expect a rapidly progressing recovery of M&A activities in the life sciences sector in 2021, driven by further portfolio reorganizations as well as increasing demand in the therapeutic areas of oncology and autoimmune diseases."

Chemicals: Crisis Increases Pressure on Companies to Change

In the chemicals sector, after catching up at the end of the year, 979 transactions were announced in 2020, a comparable level to the previous year, halting the steady downward trend of the past four years in terms of the number of transactions despite the Covid-19 crisis. The persistent driver for this was the comparatively fast recovery in Asia, which was reflected in an increased number of transactions. Moreover, as increasingly important players, financial investors continued to expand their share of the total number of transactions in 2020 from 33 % in 2019 to 40 % last year, thus driving M&A activity.

In contrast, transaction volume remained well below the previous year's figure at 68 billion dollars, down 51 % - even after adjusting the previous year for the Sabic transaction (69 billion dollars), 2020 continues the downward trend in transaction volume. The main driver of the lower volume was the absence of blockbuster deals above 10 billion dollars.

As in the previous year, the optimization of the portfolio and the focus on the core business was a major driver of M&A activity in 2020.

Christian Klingbeil: "Covid-19 has not only driven companies to position themselves more robustly, but also increased the focus on topics such as securing supply chains. Investments as well as strategic acquisitions have been pursued more cautiously overall due to market uncertainties and their impact on business models. Looking ahead to 2021, we expect a slight increase in M&A activities based on an improvement in the pandemic situation and economic recovery through further portfolio shifts as chemical companies strategically focus on their core business. Financial investors will also continue to play a role, and their increased share will be increasingly reflected in larger transactions. Megatrends in the industry such as sustainability, decarbonization and digitalization were less in focus in view of the crisis, but are also expected to lead to further pressure for change in the near future."

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