THE PURSUIT OF SPEED, QUALITY, AND COST EFFECTIVENESS IN PHARMACEUTICALS
Outsourcing has become increasingly popular in the pharmaceutical industry due to its ability to reduce costs. Various large outsourcing services now cover the entire value chain, from discovery to sales, with a focus on research, development, manufacturing, packaging, and sales. Technology and service providers are now essential to pharmaceutical companies as they help speed up research and development, optimize time-to-market, and maximize commercial success. The outsourced pharma sector thrived during the COVID-19 pandemic and has shown resilience against harsh economic conditions.
Strategic buyers are driving merger and acquisition (M&A) activity in the outsourced pharmaceutical market, which is consolidating as participants acquire the necessary scale and capabilities to become more relevant to their biopharma customers. Financial buyers and strategic investors are showing increased interest in outsourced pharma service providers due to their attractive margins, and potential for expanding their product range and market share. These service providers boast healthy margins and trade at high multiples. The desire of pharma companies to deal with fewer and larger CDMOs and CPOs accelerates consolidation in the outsourced services sector.
Trends: As pharmaceutical companies seek to speed up research and development, optimize timing to market, as well as maximize commercial success, they increasingly rely on technology and service vendors.
M&A activity: Transactions in the outsourced pharma sector thrived under COVID-19 and show to be resilient against harsh economic conditions. M&A activity is dispersed over the globe. Healthy margins and low systemic risk make CDMOs attractive for private equity investors.
Buyer characteristics: While PE-backed investors follow buy-and-built strategies, most transactions are performed by strategic buyers who expand their global and services reach, accelerating consolidation.
Valuation: Over the past years, transaction multiples in the outsourced pharmaceutical industry have steadily increased, Listed providers trade at 15x EBITDA and above, reflecting higher valuations than the overall market, reflecting a strong interest in the industry’s potential for growth.