Trends in Healthcare: An interview with Jeff Schmidt and Marc De Clerck
Jeff Schmidt, Executive Managing Director of CDI Global interviews Marc De Clerck, Managing Partner of CDI Global Belgium, Healthcare Industry Leader, Antwerp and Brussels
Schmidt:
Marc De Clerck joins us today to talk discuss M&A trends in the Healthcare sector. Let’s start with COVID, Marc. With vaccinated and boosted people still getting sick, what is your perspective on the ongoing effects and the outlook of COVID on healthcare.
De Clerck:
I think there is still an impact on pharma and biotech. Significant effort is going to those sectors in terms of people and money and time. The COVID vaccine will become like the flu vaccine, it'll be integrated more and more into public health on a yearly basis. Pharma and biotech companies must react quickly.
To do so, companies will work with “big data” and artificial intelligence in clinical trials, which is a step forward. The pandemic has moved biotech forward in Europe, and in the United States. There’s also been a huge impact on biotech fundraising.
Question:
Venture capitalists have been investing in startups involving medical devices, therapies, and supplies. Moreover, with inflation rates on the rise, it's harder to exit via an IPO. What will happen with respect to startups and early-stage companies as we move into a period of higher inflation over the next year or so?
De Clerck:
The VCs and private equities in the biotech sector know it's always a long-term investment. In Q1 2022 fundraising declined relative to last year, which was a very good year in fundraising. It’s a consequence of uncertainty with what's happening in the capital markets. Still, there will be investment in biotech startups as well as medical technology and medical devices, all of which are key to the future.
Question:
Populations are aging in Europe, North America, and China. How will this affect the market for cross-border M&A deals? Will we see more interest in buying companies that have technologies well suited to an aging population?
De Clerck:
We see two things. With an aging population, some companies who provide care are willing to invest in those countries that can be care centers for special services. In cross border, we clearly see companies doing this. Transactions were off during COVID, but we still see in Europe and in the USA this strategy working. If you go to Asia, there's a question mark. Doing a deal is still tough in Asia. But cross border is very important. And we see a lot of activity in healthcare transactions between USA and Europe.
U.S. companies are looking for deals in Europe. This trend is not purely on the elderly or the demographics, but they want to expand in the geography. For one thing, there is a valuation difference for transactions between Europe and USA. For now, U.S. companies see Europe as a place with deal opportunity with relatively lower valuations. For example, if you want to acquire technology, it's lower priced in Europe. And, if you want to diversify your market exposure, a U.S. firm may acquire local presence in Europe. Nonetheless, making acquisitions in Europe can be challenging for U.S. buyers. There are European regulations, local regulations and business practices, and cultural differences. That requires a local expertise, presence in Europe. For example, in Germany, there is a 3 billion Euro investment fund sponsored by the government for hospital growth, which includes everything from medical records to security.
Middle market cross-border transactions increased in Q1. grew in the midmarket. There still opportunity to grow in Europe and the Americas and that happens mainly by moving in cross border.
Question:
Another trend is telemedicine. There are many companies providing, for example, psychiatric and psychological consulting services using electronic platforms. There are huge advantages in terms of being able to access professional care 24 hours a day from anywhere in the world. Do you see this as a trend that will gain momentum and what M&A opportunities will be created?
De Clerck:
This trend is a global trend with many new entrants from software firms to service providers. We see smaller companies, startups, that will bring the software and then find solutions for a country or a region. This creates an opportunity for larger players to acquire those companies.
Big Data will also drive the telemedicine trend affecting pharma, diagnostics, first-line doctors, to provide quicker access to services. Telemedicine requires access to medical records, patient history, and lab results. This clear trend is strong in North America and Europe but will also impact India and China.
Question:
In the healthcare sector, broadly defined, where do you think there will be significant M&A opportunities in the coming years?
De Clerck:
The opportunities to invest will be in software as well for data as for optimizing clinical workflows and operations, biotech expansion, like cell and gene therapy. We also see a lot of consolidation in CDMO and CRO segments, provider groups and a trend in robotics, biostatistics, biometrics, real world data. The combination of diagnostics, biotech, data and Artificial Intelligence will advance personalized medicine.
Question:
What advice do you give to prospective sellers in the near-term? Should they wait or, if they're ready to exit, should they sell now?
De Clerck:
If you’re ready to sell your business now I would certainly still do it. There’s a lot of money and a lot of interest out there. I still recommend selling because there are so many trends, good trends happening in healthcare that motivates buyers.
Question:
We frequently have inquiries from early-stage companies looking to raise capital. What kind of advice do you give to early-stage companies looking to raise capital? And what are the reasonable sources of funding given the early-stage in development of these businesses?
De Clerck:
In an early-stage business, owners must prove their technology because the sales are not yet there… they are selling the technology. Is the IP there, what is the asset, what is the addressable market? If we have a client who wants to do fundraising, you have to assess fit between the technology and VCs who have experience in that area. Otherwise, it'll not work.
Question:
For business combinations, such as acquisitions, divestitures, joint ventures, and strategic alliances, what matters most if you're a buyer or a seller? What forces will influence deal activity in the next two years?
De Clerck:
The major growth will be in software. Biotech, pharma services, really all the services will depend on software from development to manufacturing. Outsourced manufacturing also has huge growth potential. For healthcare provider services like clinics, elder care, etc., there could be a shake-up with significant consolidation. As for medical devices, companies will search for ways to combine medical devices, diagnostics, biotech software. Companies who can bring together software, info-tech, and big data will be looking for business combinations to accelerate their growth.
Schmidt:
Thank you, Marc. We appreciate your, your observations and insights. CDI Global has extensive experience in this industry sector and its various sub segments. We encourage clients and prospects to contact to explore CDI Global’s advisory support and services.
Marc De Clerck
Marc is Managing Partner of CDI Global Belgium, Antwerp and Brussels offices, and heading CDI’s Healthcare Industry Expert group. He holds master’s degrees in Applied Sciences in electronics and biomedical from University Louvain. He also received a post graduate in Economics from University Antwerp Management School and Corporate Finance and M&A from INSEAD, France. His language skills include Dutch, English, French and German.
Prior to joining CDI Global, Marc, was during 8 years, Head of Global Corporate and Business Development activities of Agfa HealthCare. He managed and closed more than 35 M&A deals up to integration, ranging from € 3 to 350 mio, including investments and carve outs. Previously he was Business Unit Manager in IT, software, equipment and consumables domain. He started his career, in Pharma segment, in the R&D department of Johnson & Johnson, Belgium and moved later to Bayer and Agfa. Marc was also Board Member in high tech companies in USA and Europe. He acquired specific insights in among others, Radiology, Cardiology, Orthopedics, Oncology, Diagnostics, Medical Devices, Data Management and Hospital IT. Based on his 25 years industry and corporate experience, he has hands on knowledge of operations and the real impact of an M&A project on business, management and shareholders. Apart from company search and M&A, his experience includes strategic planning, business development and transformation management. Marc specializes in Healthcare, Equipment, Software, Services and IT domains.
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