In each case, the thesis is simple: buy your way to growth and a full-service proposition.
Full-service medcomms spans everything from pre-clinical R&D strategy through medical affairs and market access work during clinical trials, and across to the marketing and creative work for brand launches (and relaunches) – and everything in between.
Within each bucket there are several niches in a sector known for being highly fragmented.
As the larger medcomms platforms scale and their valuations rise, this has corresponded to smaller agencies also experiencing a rise in valuations.
Deal structures now tend to be more attractive to sellers than in previous years, typically tying agency owners to the growth of the overall acquiring group and not solely the performance of the target company.
The days of the five-year earnout have largely disappeared and been replaced with more favourable win-win arrangements.
As bigger groups have greater firepower to acquire, sellers continue to sell.
The 10 most active medcomms acquirers have bought 19 companies so far in 2021, with many others being acquired by other medcomms agencies or non-healthcare buyers.
The trend from 2021 is that private equity-backed acquirers are accelerating the pace of M&A across Europe and the US, in particular.
Why are we experiencing heightened activity?
The pharma medcomms market is one of the most attractive sectors to operate in. It’s worth more than $10bn in 2021 and is growing 12 per cent annually, with medical affairs and publication work making up the largest budgets across the sub-sectors.
The focus on this sector compared with other industries remains high and I can’t see the spotlight moving off outsourced pharma services for years to come.
The tailwinds keeping the conveyor belt of M&A moving include:
- Fresh private equity capital in the sector.
- A continued focus on pharma and healthcare.
- Outsourcing trends within pharma increasing and staying elevated.
- The need for more complex data and analytical requirements which can only be performed by outsourced specialists.
This all drives the market forward and acts as an additional incentive for new agencies to have innovative services at the core of their business.
One major challenge for top acquirers will be retaining culture and spark, which is often a key reason agencies are so attractive to them. I’ve seen huge strides being made by acquirers to ensure culture remains in place post-acquisition.
Independent agency owners across the pharma and life science space will have a red-hot phone line as the private equity-backed platforms continue to grow through acquisition.
James West is a director in the London healthcare M&A practice at Lincoln International
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