News / Insights

Growth Strategies in the Healthcare/Life Sciences sector for 2023

The path for corporate growth in 2023 has some obstacles that will need to be navigated:

• High interest rates
• High energy costs
• High inflation
• Elevated geo-political risk (Russia-Ukraine conflict, China, N. Korea)
• Recession risk

Despite these current problems, opportunities for growth can still be found through strategic acquisitions in the healthcare/life sciences sector.

High interest rates will make borrowing painful and/or prohibitive for many smaller companies in need of capital for marketing, expansion, equipment, clinical trials etc. This will be a boon for companies with cash reserves (or PE backing) that are able to acquire cash-strapped competitors.

High energy costs are having a negative impact throughout the world. They have been particularly hard on European corporate bottom lines due to the natural gas shortages caused by the Russia-Ukraine conflict.  Hopefully, this will be a short-term problem for Europe. In the meantime, smaller bottom lines will translate into lower multiples and create opportunities for cross border acquisitions which will drive increased revenues and profits as conditions improve.

High inflation is affecting everyone across the board. There really is no secret to outsmarting inflation. As costs increase, they will need to be absorbed or passed on to customers based on corporate circumstances. Even with higher inflation, the US dollar is still quite strong, making it a good time to consider cross-border transactions.

Geo-political risk can be managed by reducing exposure to trouble spots around the world. There are also opportunities for those brave companies willing to risk capital in areas where others fear to tread – but they better have a good reason for doing it.

Recession risk – We’re probably in one now. How long or how severe it will be is an unknown.  Unemployment is still relatively low, but it sure feels like a recession. While a recession creates fiscal uncertainty it also creates acquisition opportunities. Healthcare is somewhat recession proof in that it usually recovers quickly (see chart). There will be valuation gaps between seller and buyer expectations – which is normal in a recession. Corporate managers will have to be careful how they deploy capital to take advantage of these opportunities while dealing with their own in-house issues.

Through 10 declines, some sectors have finished above the overall market

Sources: Capital Group, FactSet. Includes the last 10 periods that the S&P 500 Index declined by more than 15% on a total return basis. Sector returns for 1987 are equally weighted, using index constituents from 1989, the earliest available data set. The 2022 bear market is still considered current as of 8/31/22 and is included in this analysis. Dividend yields are as of 8/31/22.

Even with these headwinds, the future for the healthcare/life sciences sector looks promising. A large, aging population will continue to require medical goods and services at record levels. New technologies and drug therapies will help make healthcare more cost effective. There are large pools of investment capital (both corporate & private equity) that will be looking to invest in healthcare during hard times in order to profit when things turn around.

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CDI Global is a leading M&A and corporate advisor for middle market transactions, especially cross-border business combinations. We have 200+ partners in 10 different industry groups and maintain 40 offices in 32 countries covering the major economic centers of the world. 

For more information go to: https://www.cdiglobal.com/

By: Brent Peterson, Partner-CDI Global Healthcare Group