A merger occurs when two companies join together to become one stronger, more valuable company that is better equipped to attain market success. An acquisition is similar, though it involves a company (acquirer) purchasing the majority or all the stake of another company (target). After an acquisition, both companies can still operate under their original names.
There are many reasons companies merge with, or acquire other companies, including growing the business operation or reach, sharpening the market focus, or eliminating competition. However, company mergers are not always met with positivity. Governing bodies must approve the terms of certain mergers to ensure that laws are protected and the sustainability of markets is not harmed. As a leader in the healthcare industry, you can benefit from understanding the reasons and rewards of successful mergers and acquisitions. Many transactions happen in the healthcare sector.
Healthcare Merger and Acquisition Transactions
The Institute of Mergers, Acquisitions, and Alliances (IMAA) share insights on M&A transactions in the healthcare-related industry from 1985 to 2016:
- Healthcare Equipment & Supplies: 15,612 number deals with a total value of $1,093.01 billion
- Healthcare Providers & Services (HMOs): 13,909 number of deals with a total value of $773.88 billion
Some of the largest in value healthcare M&A transactions worldwide include:
- Pfizer Inc / Warner-Lambert Co in 1999 with a value of $89.17 billion
- Actavis PLC / Allergan Inc in 2014 for $68.45 billion
- Pfizer Inc / Wyeth in 2009 for $67.29 billion
- The Dow Chemical Co / Du Pont in 2015 for $62.11 billion (still pending regulatory approval)
- Sanofi-Synthelabo SA / Aventis SA in 2004 for $60.24 billion
Impacts of Recent M&A transactions
The following cases represent mergers or acquisitions within several industries (and cross-industries) that have greatly impacted the business landscape.
Amazon.com Inc. and Whole Foods Market Inc.
On Monday, Aug. 28, 2017, the online retail giant, Amazon, closed the $13.7 billion acquisition of health and organic foods supermarket chain, Whole Foods. The acquisition is unique and intriguing, as there has been much speculation throughout the supermarket industry about the adoption of online shopping options for groceries. Amazon issued a press release stating that it will cut Whole Foods prices by up to 43 percent and give rewards to Amazon Prime customers. One of the most significant aspects of the deal involves offering Whole Foods brands and products on Amazon.com. Cross-platform selling will occur in both directions, meaning that private-label goods from Whole Foods will be available through various Amazon.com outlets, such as AmazonFresh, Prime Pantry, and Prime Now. Shoppers will also have the ability to make purchases online and pick them up at Whole Foods stores.
St. Jude Medical Inc. and Abbott Laboratories
In the healthcare sector, Abbott Laboratories completed its acquisition of the medical device company, St. Jude Medical, on Jan. 4, 2017. The deal, involving $25 billion in cash and stock, is expected to significantly increase the business that Abbott Laboratories does in the heart and neurological device market. St. Jude Medical had substantial product positions in heart failure, chronic pain, and atrial fibrillation areas. When combined with Abbott’s resources, the company will increase its competitive capabilities in all aspects of the $30 billion cardiovascular market. In addition to attaining top positions in these market niches, the acquisition gives Abbott increased opportunities to grow its portfolio of diagnostics, devices, and inventions.
IMS Health and Quintiles Transnational
On Oct. 3, 2016, IMS Health, a major health care information company, and Quintiles Transnational, a contract drug trial and medical research provider merged to form Quintiles IMS. The merger was an all-stock deal worth $12.8 billion. It brings together two companies that conduct business in adjacent biotech markets and is projected to facilitate $100 million in annual cost savings due to increased efficiency. The patient information that IMS Health brings to the merger will also contribute to streamlining the recruitment of patient subjects that Quintiles uses for its clinical trials. Overall, the new company, QuintilesIMS Holdings Inc., will be able to more effectively offer full-scale clinical packages to pharmaceutical clients.
AT&T Inc. and Time Warner Inc.
Planned for October 2017, AT&T’s $85.4 billion mergers with Time Warner will turn both telecommunications companies into a single, much larger entity. This merger has garnered a large amount of press, due to the size and influence of both companies. Together they own communications systems that encompass broadband internet services, cellular data networks, cable TV infrastructure, and satellite TV systems. The merger will mean that one giant company will have control over how the majority of the American public shares and consumes information and entertainment. Both companies maintain the merger will help increase efficiency and economies of scale, which will lead to cost savings for customers. However, critics of the deal claim the merger will lead to regional monopolies that have no incentive for innovation and improving their product offerings.
Bayer AG and Monsanto Company
Another merger awaiting regulatory approval involves the German chemical and pharmaceutical company, Bayer. It announced its intention to buy Monsanto, the seed and agricultural chemical company based in the United States. If the $66 billion deal is realized, Bayer would control more than a quarter of the world’s entire supply of seeds and pesticides. Low prices for grains and reduced spending on crop sprays have caused both companies to struggle. Since Monsanto was a direct competitor of Bayer, the merger will potentially help Bayer find growth in the agricultural industry. Bayer believes the deal will benefit farmers and consumers greatly. However, antitrust concerns from the European Union (EU) have stalled the closing of the deal. The EU has questions about assured access to better quality products for farmers.
Recent years have seen some of the largest mergers and acquisitions (M&A) in history, involving major corporations and multi-billion dollar deals. It’s important for professionals within the healthcare environment to stay up to date on the trends and understand related management and financial impacts.
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