Amgen, Pfizer and Signify Health lead M&A revival in pharma

After a slowdown in merger and acquisition (M&A) activity in the first few months of 2022, August saw a revival in dealmaking, with big names such as Amazon and Pfizer snapping up discounted companies.

Following a record year for M&A activity in 2021, in terms of both volume and value, S&P 500 companies headed into 2022 with $3.7trn in cash and equivalents, according to analysis by PwC.

In theory, this should have put public companies in a strong position to go on a spending spree, but Russia’s invasion of Ukraine so soon after the pandemic-induced supply chain shocks cut off M&A activity flow. While Bloomberg data shows there were $58.1bn worth of deals made in the first 12 days of January in North America, M&A activity in the region dropped to $29.4bn for the first 12 days of February. Deal activity had hit $33.5bn for the same period in March and $37.9bn for April.

The ongoing volatility has brought valuations down to a more moderate level and opened up new opportunities for M&A-hungry companies in the process.

Despite recent inflationary pressures, M&A activity levels have been revived in recent weeks. The first 12 days of August saw activity levels in North America reach $63.1bn. Here are some standout deals from last month.

US dealmaking boosted by pharma

After valuations were slashed earlier in the year, there was a significant flurry of activity in the healthcare and pharmaceuticals space.

On 4 August, Amgen [AMGN] said it would be acquiring Chemocentryx [CCXI] and its blockbuster treatment for inflammatory disorders, Tavenos. The deal is worth $3.7bn, or $52 per share.

“We have long thought of Chemocentryx as a potential takeout target, especially given the precedent set by AstraZeneca [AZN.L] and its acquisition of Alexion Pharmaceuticals,” noted SVB Securities analyst Joseph Schwartz, who covers rare diseases.

The Chemocentryx share price closed 109.2% higher on 4 August at $50.43 and has maintained its gains through to the end of the month, closing at $50.98 on 31 August — up 40% year-to-date.

On 8 August, Pfizer [PFE] also announced it had agreed to buy sickle cell therapy developer Global Blood Therapeutics [GBT] for $5.4bn ($68.50 per share).

The acquisition will support the pharmaceutical giant’s push into rare diseases. According to Bloomberg Intelligence analysts John Murphy and Sam Fazeli, Wall Street is expecting GBT’s drug sales to hit $1bn in 2026.

The GBT share price started to rally in early August amid rumours Pfizer was in talks to acquire the firm. Over the course of the month, the stock has climbed 107.5% to close at $67.90 on 31 August.

Telemedicine company Signify Health [SGFY] is also reportedly an acquisition target for UnitedHealth Group [UNH], but Amazon [AMZN] could make it a bidding war worth as much as $8bn.

The Signify share price jumped 32% on 22 August following the news that Amazon was reportedly bidding for the company, and closed 31 August 63.1% higher than the start of the month.

“Signify gathers a tremendous amount of data on the health status and needs of the Medicare Advantage population, a feature that would make it valuable to Amazon or any other larger retailer intent on penetrating that demographic and broadening its reach in healthcare,” William Blair analysts wrote in a note to clients seen by MarketWatch.

UK deals pick up

One of the UK’s leading automotive retailers Pendragon [PDG.L] is being eyed up by US car deal Lithia Motors [LAD]. Sky News reported on 13 August that Lithia had been identified as the “mystery bidder” of a £460m offer made in July that valued the Pendragon share price at 29p. City sources indicate the Nottingham-based company won’t entertain offers under 30p, it added. The stock closed on 31 August at 22.40p, down 3.4% year-over-year.

On 16 August, Ted Baker [TED.L] agreed to be bought by Authentic Brands for £211m (110p per share). This is a cut-price deal in comparison to the 130p per share and 137.5p per share bids it turned down from private equity firm Sycamore earlier this year.

The fashion retailer has been attempting to turn its fortunes around following a series of profit warnings and poor sales over the past few years. The takeover shows there’s still value in the brand, according to AJ Bell financial analyst Danni Hewson in comments seen by Shares magazine.

The Ted Baker share price closed 16.9% higher following the news on 16 August, and is up 23.5% over the past month as of 31 August.

“Authentic Brands, which previously purchased Reebok among other names, clearly thinks so as it swoops for the business in a cut-price deal,” wrote Hewson.

It was also announced last month that Thoma Bravo is considering taking over cybersecurity firm Darktrace [DARK.L]. The private equity firm has until 12 September to lodge an official bid, so this is one to watch over the next couple of weeks. The Darktrace share price closed 24.2% higher on 16 August after the news broke, and is up 34.9% over the past month as of 31 August.