1st May 2024
As part of The Drum’s Health & Pharma Focus, Green Square’s Tony Walford analyses mergers and acquisitions in the sector and looks at what is driving investor interest.
Given medicines and therapy purchases are often necessity purchases, less prone to reductions in discretionary spend, and coupled with the significant size of pharma marketing budgets, it becomes obvious why healthcare marketing has always been high up on investors’ wish lists.
Historically, medical communications tended to be the preserve of the network advertising groups, all of which have their own healthcare subsets containing various specialist agencies (think Omnicom Health Group, Publicis Health, Havas Health and You – the list goes on), but given the attractiveness of the sector, it’s no surprise we’ve seen a rise in the number of PE firms entering the fray.
Some of these are huge $500m revenue life science commercialization firms, such as Eversana (backed by JLL/Water Street) and Blackstone-backed Precision Medical Group, but there are also more marketing-focused groups of varying size, many of which are just as significant.
For example, take Avalere Health, previously known as Fishawack. Following an LDC-backed MBO in 2017, it made several strategic acquisitions before reaching a pivot point in 2020 when more substantial investment was needed. This came in the form of Bridgepoint and it has since undergone significant transformation, having acquired 19 agencies and consultancies globally and employing over 1,500 staff.
OpenHealth started in 2011 as a joint venture between Chime and its founders. The management team scaled it through acquisition before selling it to Amulet Capital in 2018. Having scaled it further, Amulet subsequently sold it to Astorg in 2022. It’s now around $250m in turnover with over 1,400 staff.
Real Chemistry is a major player in the healthcare-integrated communications space and, with New Mountain’s backing since 2019, has invested further into its AI and data analytics capabilities, enhancing its service offerings. At its current 2,000 people and $600m turnover, it’s yet another example of how the right investment-backed strategy can achieve real scale. You can see the trend here.
Then there are the more mid-market players, such as Knox Lane-backed groups Spectrum Science and Fingerpaint, Waterland’s Sciris and Levine’s Prime Global. These firms have historically focused on investing in agencies delivering at least £2m profit, but there’s some new and entrepreneurial players entering the mix who are happy to look at smaller opportunities where the skills are a fit for what they are looking to build.
When it comes to selling a healthcare agency, there’s no one size fits all. That said, the majority of acquirers are looking for at least £1m EBITDA (and preferably at least twice that) for it to move the needle in terms of their own scale, unless it’s a niche offering or in a market they don’t already cover.
So, what’s the market currently doing? In 2023, partly impacted by the hike in debt funding costs and combined with many pharma companies reining in spend, which impacted some agencies’ revenues and profits, the headline number of deals declined. That said, it was still a busy year across the piece with 28 healthcare marketing transactions of note being completed.
2024 has started well and, again, it is predominantly the PE-backed acquirers leading the charge. Eight of the nine marketing-specific deals since January have involved PE and it has been a blend of healthcare comms, digital healthcare, market access and payer advisory agencies being bought. In some ways, we should probably stop referring to these groups as being ‘PE.’ The reality is they are now big trade buyers in their own right and sit at the acquisition table next to the publicly listed outfits – it’s become a bit irrelevant where the funding is from.
At Green Square, we’re finding digital health is a particularly active and sought-after area, with a growing focus on AI applications. This includes increasing interest in teletherapy platforms and mental health apps, which are attracting significant investment. AI-driven health tech is one of the hottest topics right now as acquirers seek to gain a competitive edge by incorporating these technologies into their existing marketing offerings, driving better insight and faster results for their clients.
Overall, M&A activity in healthcare marketing is likely to remain very dynamic, with those agencies that have specialist disciplines, particularly in data and tech, or of scale, being the most sought-after. We’re seeing no reduction in appetite from buyers and, coupled with potential Capital Gains Tax changes on the horizon for those based in the UK, it’s a good time for independent agencies to consider going to market.