Deal volumes for global pharmaceutical mergers and acquisitions were lower in 2023 than they were 10 years ago. They’ve also been lower, on average, than the four years prior to the highs in 2018 and 2019.
There were some encouraging signs as the industry (and especially large drugmakers) headed into 2024, including a rise in average premiums in the pharma industry, yet 2024’s numbers year to date point to a down year for these types of deals.
Little Rebound for Pharma M&A Deal Volumes
Global M&A deal volumes for the pharmaceutical industry group over the past decade peaked in 2019 at $358.1 billion.
These deals cover a variety of transaction types (including controlling-stake mergers and acquisitions, minority purchases, private equity investments, and venture capital financing rounds) and deal parties (either the target, seller, or acquirer can be in the pharma industry to be included in the data).
Since 2019, deal volumes have broken the $200 billion mark only once, in 2023. Last year’s $215.9 billion annual deal volume also represented the greatest year-over-year increase (2022 had $178.2 billion in deal volume) since the jump from 2017 to 2018.
Yet even though 2023’s annual deal volume may have seemed promising, 2024’s performance thus far doesn’t bode well for a second year of increasing deal volumes. The pharmaceutical industry group saw $74 billion in deal volume for the first half of 2024—a lower H1 total than those for 2022 ($101.2 billion) and 2023 ($108.8 billion) and the lowest since H1 2020 ($65.7 billion).
Pharma–Biotech Deal Volumes Increased in 2023
The data for a subset of pharma deals that includes pharma–biotech companies are analogous to that of the pharma industry, with one key difference: This subset of pharmaceutical transactions, which reveals the M&A activity in deals that involved pharma–biotech companies as both targets and acquirers, experienced higher deal volumes in 2023 ($128.7 billion) than in 2014 ($105.1 billion).
Like global pharmaceutical M&A deals, pharma–biotech deal volumes saw increases in deal volumes from 2022 to 2023; last year marked the first year-over-year increase in deal volumes in this industry subset since the increase from 2018 to 2019. This upswing will likely be short-lived, however, as pharma–biotech deals—like the pharmaceutical industry group—had a remarkably lower deal volume in H1 2024 ($37.6 billion) than in H1 2023 ($72.9 billion).
Also similar to global pharma M&A deal volumes, deal volumes for mergers and acquisitions over the last decade that involved pharma–biotech companies as targets and acquirers peaked in 2019 ($264.9 billion) before falling noticably the following year.
Do Average Deal Premiums Signal an Upswing?
In a break from the pattern of global deal volumes, average deal premiums indicate that there’s overall more interest in pharma deal activity than 10 years ago.
These premiums reflect the average amount paid above market value for shares being acquired in a transaction. Since buyers often use premiums to reach a deal agreement and fend off competition, average premiums may signal the attractiveness of targets in the pharma industry.
Average premiums for global M&A deals in the pharmaceutical industry were higher in 2023 (42.4%) than they were in 2014 (31.9%). 2023’s average premium barely edged out 2022’s average (42.3%) to have the highest average premium for that time span.
Similarly, for the pharma–biotech subset, average premiums also broadly increased from 2014 (46.7%) to 2023 (59.8%), with 2023 having the third-highest average premium in the decade—only 2016 (64.7%) and 2022 (70.4%) were higher.
Interestingly, 2019 wasn’t a standout year for average premiums like it was for deal volumes for both categories of deals. One explanation is that pharma targets did well in 2019 and thus were attractive targets, leading to higher purchase prices but not higher premiums, since a well-performing company’s share prices could have been higher to start.
While M&A deal activity hasn’t rebounded as robustly as potential deal parties may have wanted, the high prices paid for pharma–biotech targets suggest that companies’ interest in doing deals in this industry has been strong.
What’s Next for Pharma M&A Activity?
Despite lower deal volumes post-2019, pharma companies appear to be desirable targets for potential acquirers, as the average premiums data attest.
But ongoing geopolitical tensions, potential legislation that may affect companies’ relationships with those in other countries, and upcoming elections are likely to dampen the attractiveness of pharma deals through the end of 2024.
For example, the outcome of November’s US election may impact merger reviews and the scrutiny that pharma deals face from agencies. And even though M&A activity traditionally sees a bump in Q4, H1’s disappointing deal volumes in both the pharmaceutical industry group and pharma–biotech subset suggest that the remainder of 2024 faces an uphill climb to surpass 2023’s deal volumes in this industry.
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