Who’s in line for the next big mega-merg­er? Morn­ingstar hand­i­caps the odds among the top play­ers

The M&A deals we’ve al­ready seen in Q1 have whet­ted an­a­lysts’ ap­petite for much, much more. And Morn­ingstar has come up with its break­down of the top buy­ers like­ly scour­ing the in­dus­try for takeovers — as well as the top tar­gets.

And more mega-merg­ers, they say, are very much on the ta­ble in 2019.

Lack of growth through 2022 at Am­gen and Gilead, in com­bi­na­tion with healthy ex­pect­ed cash flows and fair fi­nan­cial health, gives them the de­sire and am­mu­ni­tion for large-scale deals, al­though the best pair­ings (Am­gen/As­tra and Gilead/Re­gen­eron) are made less like­ly by the strong val­u­a­tions of their in­tend­ed tar­gets. J&J, Mer­ck, and Pfiz­er al­so have the abil­i­ty and de­sire to bol­ster their port­fo­lios with big­ger deals, and their shares are rel­a­tive­ly strong cur­ren­cy; we think the Mer­ck/Lil­ly fit is strong enough to counter Lil­ly’s high­er val­u­a­tion, and Pfiz­er could con­sid­er buy­ing Bris­tol af­ter the Cel­gene ac­qui­si­tion if val­u­a­tions re­main com­pelling, as this would great­ly ex­pand its on­col­o­gy port­fo­lio and pipeline. No­var­tis could raise enough cash to do a large deal fol­low­ing the Al­con spin-off and the po­ten­tial sale of its stake in Roche, and Ab­b­Vie could be an in­ter­est­ing fit for its on­col­o­gy and im­munol­o­gy port­fo­lios. We think Ab­b­Vie (sig­nif­i­cant debt, un­der­val­ued shares) and Roche (strong pipeline, fo­cused on on­col­o­gy tuck-ins) will stick to small­er deals, and Sanofi is like­ly to con­tin­ue its rare-dis­ease fo­cus with So­bi (the oth­er half of Biover­a­tiv’s busi­ness) and Bio­Marin (rare dis­ease with gene ther­a­py ex­per­tise).

Unlock this article instantly by becoming a free subscriber.

You’ll get access to free articles each month, plus you can customize what newsletters get delivered to your inbox each week, including breaking news.

SIGN UP LOG IN BECOME A PREMIUM SUBSCRIBER