The volume of healthcare and life science deals has risen 15% due to a late 2020 surge, with growing interest seen in biopharma, healthcare IT, and diagnostics subsectors. They are expected to continue being robust in 2021, despite the ongoing COVID-19 pandemic, according to the KPMG 2021 Healthcare and Life Sciences Investment Outlook survey.

“While the dollar value of deals across healthcare and life sciences was lower in 2020 than in 2019, the M&A market was extremely active during the second half of the year and early indicators point to a very active 2021,” said Brett Glover, KPMG U.S. healthcare and life sciences deal advisory leader, in a statement.

High valuations continuing in 2021 and confidence about the future are driving deal activity in subsectors of these markets. The survey evaluated ten of these and questioned nearly 300 industry leaders about the impact of COVID-19, evolving market factors, and the political and policy environment on investment decisions in 2021.

Healthcare deals slowed in the second quarter of 2020 due to elective surgeries, regular wellness visits and chronic illness checkups being put on hold. It picked up, however, through the end of the year, with many healthcare organizations and diagnostic and medical device makers indicating COVID-19 as a top factor affecting deal activity in 2020 and 2021.

While medical device companies that develop solutions for elective surgeries were hit hard by the pandemic, many have made large numbers of tuck-in deals based on future market needs for either diversification or concentration on one therapeutic area. Deals for diagnostic manufacturers are expected to rise in 2021, with 63% of survey respondents crediting COVID-19 testing, while telehealth ranks as the most attractive healthcare IT subsector among respondents for the next 12-24 months.

Life sciences experienced steady transactions throughout the year despite high valuations, due to government investments in COVID-19 vaccines and treatments, and interest in breakthrough drugs. Biopharma had the most active deal market in history with 384 deals, and early-stage cell and gene therapies and antibody-drug conjugates are expected to continue in 2021 through more creative deal structures, while behavioral health roll-ups are expected to increase in 2021 due to increasing depression, anxiety and substance use disorders during the pandemic.

In any subsector, companies that persevered throughout the pandemic relied on opportunistic and defensive investment strategies, such as acquiring products and services for COVID-19-related needs. The waiving of regulatory requirements for broader use of telehealth also helped hospitals and physician practices continue to see patients while practicing social distancing.

It is the resilience of this and companies in other subsectors, combined with a commitment to continue to evolve to align with the changing needs of the public, that has increased expectations of rising value in biopharma, healthcare IT, and diagnostics companies in 2021, reports the survey.

“Looking to 2021, we expect organizations in certain subsectors to successfully complete acquisitions that were put on hold in 2020, while others will deploy capital by pursuing platform expansion and bolt-on acquisitions or investing internally to improve operational efficiencies," said Glover.

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