Covid-19 caused mergers and acquisitions (M&A) deals across all sectors to be put on hold in the second quarter of 2020. However, 2021 has continued the recovery in deal activity evident in the second half of 2020, with a focus on sectors including medical devices, healthcare, pharma and foodservices. Medical devices, followed by foodservice and pharma sectors, registered the highest growth in Q2 2021 in terms of deal value. The healthcare sector recorded the highest jump in deal volume when compared with Q2 2020.

Healthcare related sectors saw highest growth in Q2 2021

Q2 2020 saw the lowest quarterly M&A transaction value in the last five years of just $364bn. Activity recovered sharply in the second half of 2020 onwards, reaching $1tn of transaction value in the second quarter. At the sector level, medical devices saw a nine-fold increase in deal value in Q2 2021 when compared to Q2 2020, followed by foodservice with 586% growth and pharma with 458% growth. In terms of deals volume, the healthcare sector saw the highest increase of 70% from Q2 2020.

Covid-19 accelerated technology adoption across all sectors

The tech, media and telecom (TMT) sector usually contribute to the largest proportion of M&A deals. Q2 2021 saw 2,876 deals with a combined transaction value of $357.2bn. The growing use of technology, driven by the pandemic due to social distancing and lockdowns, has led other sectors to adopt technology via M&A, in order to adapt to the challenges of the pandemic. Healthcare related sectors were most affected in the first half of 2020, while growing technology adoption has helped drive deal activity in these sectors in 2021 to date. The digitalisation of healthcare systems includes smart health devices, healthcare practice management software, consumer-centric delivery models and digital therapeutics. This has seen many companies update their business models and, as a result, healthcare firms are increasingly acquiring or partnering with tech companies. Similarly, the foodservice sector has also increasingly adopted ecommerce to adapt to the new realities.

Drivers of M&A in the leading sectors

Areas such as telehealth, behavioural health and virtual care are in demand as many large health providers are seeking to provide more effective care. There is also an increase in urgent care systems and larger healthcare players buying smaller players in these fields to complement their existing services. As well as vaccination programmes, rapid and increasingly sophisticated point-of-care diagnostics play a central role in managing the pandemic. Among all the sub-sectors of medical devices, in-vitro diagnostics, diagnostic imaging and dental devices were the top three sectors with the highest deal value, while healthcare IT reported the highest deal volume in H1 2021. Traditional big pharma players are acquiring biotech companies at the frontier of science, such as cell and gene therapy or next-generation therapeutics.

In the foodservice sector, the popularity of innovative niche brands for acquisition by bigger businesses was a trend in 2021. Snacks and prepared packaged foods are seen to be in more demand due to consumers staying home more often, and there was a subsequent increase in deals for manufacturers of those products. Demand for companies that produce plant-based foods, healthier and more sustainable has increased. As vaccination drives continue and lockdowns ease in various regions restaurant business was also seen to surge and recorded growth of 39.9% in M&A deal value in H1 2021 when compared to H1 2020.

Megadeals in Q2 2021

In Q2 2021, a total of twelve megadeals were announced in pharma, healthcare and medical devices sectors together. Top deals included the acquisition of PPD by Thermo Fisher for $20.9bn, Ginkgo BioWorks going public in a SPAC deal via Soaring Eagle Acquisition for $16.9bn and the acquisition of Aldevron by Danaher for $9.6bn. The Middleby Corporation to acquire Welbilt for $4.3bn was the largest deal announced in the foodservice sector.

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Looking later in 2021, as the pandemic still remains a concern for overall wellbeing and demand for consumer health products such as vitamins, minerals and supplements is expected to increase and hence deals around these would be increasingly attractive for investors.