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M&A bubble
With M&A activity as prevalent as it has been, there's a lot of talk about just how companies should position themselves. By that, I mean should young companies grow with an eye on a buyout? Prepare to try the public markets? Both?
The answer, of course, is to grow the company as if none of this matters -- simply building value is the one way to set a company up for either end, or to go it alone. Still, it's hard for a small biotech to ignore what's happening to its brethren and not ponder what's next.
BIO has any number of panel discussions devoted to this topic, or some variation of. In a session this morning, Phil Taub, from law firm Nixon Peabody, displayed to a full audience data on buyouts of public companies in the biotech sector. In 2005, pharma bought 8 public life science firms for a total value of $13B, at an average premium of 38 percent. Biotechs that year bought 10 public firms, costing $6.9B, at an average premium of 37 percent. But things were even better last year for those being bought. In 2006, pharma bought 15 public life science firms for $16.2B at an average premium of 58 percent. Biotech companies bought 17 firms for a total of $8.9B at an average premium of 55 percent.
It's early, but this year things have continued apace. AstraZeneca is buying MedImmune for $15.6B, at a price of $58 per share. While that is a 21 percent premium to MedImmune's close the previous trading day, the stock had been running up for weeks in anticipation of the sale -- the company's trading price was just less than $32 at the end of February. Analysts had predicted the company might garner a $45 share price, so $58 per share suggests that either AZ valued MedImmune a lot differently than the analysts, or that the bidding for MedImmune behind the scenes was particularly fierce. Panicked might be a good word.
For MedImmune shareholders, it's great. And it's been great for a long list of biotechs purchased in the last couple of years. And every company I just mentioned is a public firm, but it begs the question of whether the industry is sitting on an M&A pricing bubble that could change the M&A/IPO debate for private firms. If so, does it matter? Of course -- when that bubble bursts, no one wants to be on the block and getting valued at less than the paltry amounts the public markets are providing today. But there's also really nothing to be done about it. So, ride the wave while it lasts.
