Healthcare sector sees renewed interest from corporate buyers

The healthcare industry recorded a deal value of US$1.13b (SG$1.53b) between January and April.

Corporate buyers are returning to the healthcare sector to acquire bolt-on targets as valuations cool amidst a challenging private equity (PE) exit environment.

Deals such as Fullerton Health’s sale to Far East Drug Co. and the acquisition of Eu Yan Sang by Japan’s Mitsui and ROHTO Pharmaceutical are a testament to this trend.

These two high-profile control deals helped propel healthcare to become the industry with the biggest mergers and acquisitions (M&A) by deal value in Singapore this year, according to Yiqing Wang, managing editor for Asia Pacific at Mergermarket, a service of ION Analytics.

Despite only having four deals, the healthcare industry recorded a deal value of US$1.13b (SG$1.53b), accounting for 25% of deal value recorded in Singapore from January to April.

The sector’s deal value in the first four months of 2024 is already above its 2023 record of US$464m.

“For the first time in the past 10 years, healthcare has overtaken technology to be the biggest M&A industry in Singapore,” Wang said.

Technology, which was in second place, recorded a deal value of US$1.03b (SG$1.39b), accounting for 23% total deal value for the January to April period.

Craig Loveless, partner at Norton Rose Fulbright, said the M&A activity within the technology sector remains strong, with AI seeing an increase in deals.

Apart from technology, Loveless points to the energy sector as a main driver for M&A activity in Singapore.

Elaine Tan, senior manager at LSEG Deals Intelligence, said Consumer Products & Services is also a key sector for M&A deals by deal value in Singapore.

Amongst the biggest deals that the Consumer Products & Services sector will see this year is Alibaba Group’s pending US$3.75b (SG$5.07b) acquisition of the remaining interest it did not already own in Cainiao Smart Logistics Network from Singapore’s GIC and Temasek, Shen Guojun, and Malaysia’s sovereign fund Khazanah Nasional.

Industrials and Financials are also leading sectors in M&A activity by deal value in Singapore, said Tan.

In 2023, financials was also amongst top industries by deal value, bolstered by Japan-based Sumitomo Life’s acquisition of Singapore Life Holdings.

Rising Japan investments

Tan said Japanese investments and acquisitions in Singapore have been on the rise as companies in the East Asian country seek diversification and growth opportunities outside Japan.

“Japan's increased foothold in Singapore and Southeast Asia stems from a confluence of factors, including a growing consumer market, strategic location, and the access to technological advancements,” she said.

In 2023, Japan outbound acquisitions in Singapore increased by fourfold from 2022 to almost US$3.0b (SG$4.05b), marking the highest annual total since 2020. “Number of deals grew 13% YoY and saw the busiest year since 2019,” said Tan. Singapore also accounted for 45% of Japan’s outbound M&A activity in Southeast Asia.

Despite increased investments, Japan was only second to the United States in the list of most active acquirer nations targeting Singapore in 2023.

Data from LSEG showed that Japan had a market share of 25.9%, whilst the United States posted a 27.4% market share.

Rising Japanese investments helped propel Singaporean-involvement in M&A activity to its busiest year, with more than 1,600 transactions announced in 2023.

Mid-market deals

Last year, mid-market deals dominated, setting a trend expected to continue throughout 2024.

“Given the IPO markets not being liquid enough in Singapore, we expect mid-market deals in [Singapore to] remain strong as strategic buyers seeking strategy diversification with bolt-on acquisitions,” Mergermarket’s Wang said.

For the rest of the year, Tan believes M&A activity in Singapore will pick up on the back of improved economic conditions, easing inflation, and anticipated interest rate reductions which will make capital less costly to access.

Loveless also has a positive outlook towards M&A activity in Singapore and the wider Asia-Pacific.

“Many corporations will have M&A as a pillar of executing their growth and strategic plans. This will enable them to filter deals that fit into those growth and strategic plans,” Loveless said.

“When evaluating which deals to pursue, buyers will typically take into account factors relating to the target’s commercial value, financial health, legal and compliance risks, culture, ESG factors and potential synergies after the acquisition,” he added.