Insight

Life Sciences Tools & Diagnostics Newsletter Q1 2023

Read more about M&A activity and trends in this sector

Jason Moran

Jason Moran

Managing Director, Corporate Finance, KPMG US

+1 415-418-8474

Public Markets Update

The large cap tools and diagnostics group of stocks, as a proxy for the sector, has mirrored the broader S&P 500 Healthcare Index, which is down slightly since the start of 2023 and through March 31 (LSTDx down 3.6%, S&P 500 HC down 6.0%). Mid-cap tools and diagnostics stocks have performed better, up 5.1%, but have also seen more volatility. Volatility has been amplified across the market by the regional banking crisis. Top performers YTD in the LSTDx large cap group include BIO, ILMN, and SRT3. Since late 2022, companies in the sector (including TMO, A, and HOLX) have shown confidence in their businesses by executing stock buybacks.

On the valuation front, the life sciences tools and diagnostics’ large-cap group is currently trading at an average of 17.1x LTM EBITDA, above the average since Jan-2022 of 16.0x, and the mid cap group at 15.1x, above the average since Jan-2022 of 14.1x.

Life Sciences Tools & Diagnostics M&A Overview

Deal Volume


Challenging macroeconomic factors including a higher cost of capital, the regional banking crisis as well as geopolitical uncertainty have impacted overall YTD-23 M&A activity


 

Financial Buyers

Deal Volume
(% of total)

FY’22: 30.1% YTD-23: 34.5%
FY’21: 27.9% YTD-22: 26.1%

Strategic Buyers

Deal Volume
(% of total)

FY’22: 69.9% YTD-23: 65.6%
FY’21: 72.1% YTD-22: 73.9% 

M&A Exit Multiples: Average EV / LTM EBITDA exit multiples are 16.2x for FY’22 versus 12.4x for FY’21.

Public Co Multiples: Current EV / LTM EBITDA large-cap multiples are 17.1x versus an average of 16.0x since 2022.

Deal Value ($bn)

While deal value is down YTD, two large offers took place in March 2023, with a $3.5 billion offer by Cinven(1) to acquire SYNLAB and a $2.2 billion offer for Healius by Australian Clinical Labs, not included in the deal value above

Notes:

  1. Cinven’s submission of non-binding expression of interest to acquire the remaining stake in SYNLAB.
 

M&A Market Update & Sector Discussion


M&A volumes continue to be down following an extraordinary year in 2021, with a slow start in across virtually all sectors. While the expectation gap in valuation between buyers and sellers has made deals more difficult to close, underlying drivers remain strong for both strategic and private equity players.

The tools and diagnostics sector is well-positioned to tackle challenging markets – After the normalization of Covid-19 related revenues, companies are focusing once again on the traditional parts of their businesses, including bioprocessing, genetic analysis, liquid biopsy, spatial biology, and proteomics. On the diagnostics front, growth has been propelled by the need to fulfill expectations of faster speed, better accuracy, and convenience. The research tools players continue to benefit from the large levels of funding both from the U.S. government (including from initiatives like the Cancer Moonshot Mission) as well as from the broader capital markets.

M&A remains a priority for strategic players in the tool and diagnostics sector, with many management teams indicating that M&A will be necessary to achieve growth goals. Abundant cash balances should continue to allow the large and mid cap group of LSTDx companies to easily execute transactions amid a tougher financing market. Notably, Bruker made a pair of acquisitions to start off 2023, including Biognosys, which produces proteomics solutions for R&D and clinical trials.

New modalities including cell and gene therapies continue to drive M&A. Notable transactions include Waters Corporation acquiring Wyatt Technology for $1.4bn and Bio-Techne acquiring a 20% stake in Wilson Wolf Manufacturing. For both companies, these transactions provide exposure to the attractive large molecule end market.

Private equity firms have played an increasing role in the sector, accounting for 34.5% of the total deals YTD. In the last year, PE firms have completed numerous platform acquisitions, including via large corporate divestitures. Smaller add-on deals include Vector Laboratories’ (Thompson Street Capital) acquisition of Click Chemistry Tools and Fluoroprobes, and Calibre Scientific’s (StoneCalibre) acquisition of Alphascience. With substantial dry powder and strong interest in the sector, we anticipate that PE investment in the sector will continue to be robust.

Amid recessionary clouds and tough macroeconomic conditions, we anticipate that strategics will look to deploy their multi-billion firepower on M&A both to supplement growth and to expand their service offerings. We also anticipate meaningful activity from the private equity universe given sector fundamentals and the magnitude of dry powder that is available.
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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KPMG Corporate Finance LLC’s investment bankers have extensive Healthcare transaction and industry experience, which enables them to understand the industry-specific issues and challenges facing our clients.