Sector Report

1H 2023 Capital Markets Update

Our 2023 1H Capital Markets Update includes the latest industry trends, macro developments, private market deal activity, a healthcare spotlight, and Bourne’s insights.

Key takeaways include:
  • Slowing inflation has given the Fed a path to lower rates after the steepest hiking cycle in 40 years. This has coincided with improved economic sentiment after higher interest rates stifled business growth and M&A activity. The outlook for M&A and capital markets is improving, but with inflation still well above the Fed’s 2% target, short term rates above 5% are likely to persist well into 2024, causing concern among debt-burdened companies.
  • In Q2, there was a significant jump in pharma deal making, as deal count increased by 26%, yet total deal value QoQ declined slightly due to the outsized Pfizer/Seagen deal. This uptick in part came from private equity (“PE”) firms stepping back in the ring through several notable take privates. Sponsor-backed deals accounted for 34% of quarterly deal value and 13% of deal count, 4.6x and 2.2x the 5-year quarterly average, respectively.
  • Speaking of PE, US PE-backed transaction values fell in Q2 2023 and are down 30% from the first half of 2022. This is consistent with market sentiment, as macro factors have stifled deal making. In addition, leverage remains scarce. Debt for LBOs fell to 43% of enterprise value (“EV”), a 14% year-over-year decline. This has had a knock-on effect as both valuations and transaction volume have declined.
  • Declining total EV of PE deals has coincided with relatively stable PE transaction volumes over the last four quarters. This indicates that it’s smaller M&A deals that are getting done, many of which are add-on acquisitions to existing platforms that are easier to finance.
  • Continuing the smaller deal trend, corporate divestments have increased to 50% of total deal count, as big pharma continues to implement a “lean pharma” transition and players look to use divestiture proceeds as alternative financing. This presents an opportunity for Middle-Market Specialty Pharma platforms to be acquisitive.

We hope you find this information valuable. If you’d like to discuss further, please reach out to our Research Team.

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