Life Sciences Tools & Diagnostics Industry Update Q3 2022
Read more about M&A trends and activity in this sector
Public Markets Update
Following the outbreak of COVID-19 in late Q1 of 2020, the life sciences tools & diagnostics sector generally outperformed the broader markets through the end of 2021. Since the start of 2022, however, the large cap group of stocks within the sector has generally followed the downward trend in the broader markets, experiencing a YTD decline of ~27%. Moreover, the mid cap and small cap sub-groups within the sector have witnessed a more substantial valuation reset that well exceeds their large cap brethren.
At present and as a proxy for the sector, the large cap group of stocks within the sector is currently trading at an average EV / LTM EBITDA of 14.2x versus a three-year average of 15.8x.
Life Sciences Tools & Diagnostics M&A Overview
Deal Volume
| Financial Buyers |  | YTD-22: 29.4% | Q3-22: 34.3% |
| Deal Volume (% of total) | YTD-21: 28.5% | Q3-21: 31.1% |
| Strategic Buyers |  | YTD-22: 69.8% | Q3-22: 62.9% |
| Deal Volume (% of total) | YTD-21: 71.5% | Q3-21: 68.9% |
M&A Exit Multiples: Average EV / LTM EBITDA exit multiples are 16.1x for YTD-22 versus 11.4x for YTD-21.
Public Co Multiples: Current EV / LTM EBITDA average large cap multiples are 14.2x versus a three-year average of 15.8x.
Deal Value ($bn)
M&A Market Update
Geopolitical concerns and inflation worries, among other macro factors, have caused a sell off in the broader markets and also have negatively influenced M&A activity in YTD 2022. Within the life sciences tools & diagnostics sector, there also have been a number of additional headwinds, inclusive of concerns relating to the biopharma funding environment as well as the so-called COVID Cliff, that have contributed to a ~25% decline in M&A transaction volume versus the prior year. Additionally, in many cases, differences in value expectations between buyers and sellers have caused transactions to be delayed or even discontinued. In YTD 2022, the average LTM EBITDA exit multiple was 16.7x versus 11.4x over the same period in 2021.
The good news is that there are encouraging factors that should drive M&A activity in the near term:
- Government Policy – The Inflation Reduction Act is not expected to materially affect R&D spend in the near term. Further, legislation/orders related to biomarker testing, biomanufacturing and the Cancer Moonshot should provide tailwinds for the sector.
- Recognition of the Value Created by Inorganic Growth/Streamlining – The overall sector landscape remains fragmented and ripe for consolidation. Further, many larger companies continue to streamline their businesses through larger divestiture transactions.
Sponsor-Backed M&A Activity
While the sponsor-backed M&A transaction volume within life sciences tools & diagnostics sector is not as large as the M&A transaction volume in some other areas of healthcare, it is still meaningful and many private equity firms have been very successful with their investments in the sector. In a typical year, sponsor-backed M&A transaction volume is roughly one quarter to one third of the total M&A deal volume in the sector and sponsor-backed M&A activity in 2022 YTD has been consistent with this range.
Recently, a number of meaningful sponsor-backed divestiture transactions have been announced. These transactions are part of major corporate restructurings and include Bain Capital acquiring Olympus’ Scientific Solutions Business for ~$3.1 billion and New Mountain acquiring PerkinElmer’s Applied, Food, and Enterprise Services business for ~$2.5 billion.
We expect the M&A environment in the life sciences tools & diagnostics sector to continue to be dynamic. On one hand, many larger companies have seen tremendous success as it relates to tuck-in strategies. On the other hand, we continue to see meaningful divestitures (with PE participation) as part of portfolio optimization and general streamlining at large corporates.
Jason Moran
Managing Director and Group Head, Healthcare Investment Banking
We hope you find this information valuable, and as always, feel free to reach out if you would like to discuss in further detail. To read the full report, download the PDF below.
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Q3 2022 Life Sciences Tools & Diagnostics Newsletter
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