Navigating Deal Terms in Life Sciences M&A

Whilst 2024 saw a rise in the capital raised by biotech companies, two recent reports documented a decline in the volume of M&A activity in the life sciences sector¹. Uncertainties regarding the political and regulatory landscape in Europe appear to be key reasons for this decline. There are, however, reasons to be optimistic about the coming years, with Europe shifting its focus from regulating the market to strengthening its investment climate – particularly benefiting the life sciences sector. 

Since life sciences M&A activity in the Netherlands reached its peak near the end of 2021, deal terms have been moving in a more buyer-friendly direction. This trend continued in 2024, where, amongst other things, we saw more capital protection measures and an increased use of MAC provisions.

This article highlights how current market trends are influencing deal terms, spotlighting the provisions gaining momentum and the evolving priorities at the negotiating table. Our insights are drawn from a review of data pertaining to the life sciences sector included in the latest edition of the CMS M&A Study. 

Return of the MAC
After two years of steady decline, MAC provisions have made a strong return in life sciences M&A. Their inclusion in transaction
documents increased from 12% in 2023 to 23% in 2024. This shift seems to be largely driven by greater involvement of US-based
parties. In the US, MAC provisions are standard and appear in up to 98% of transactions. We expect this trend to continue, as MAC provisions are morecommon in buyer-friendly markets, particularly during periods of economic or political uncertainty.

Locked box vs. completion accounts
The use of locked box in life sciences deals consistently exceeds the market average over the years. An explanation may be that for targets whose valuation is primarily based on intellectual property, pipeline assets, or platform technologies – rather than operational performance – pricing adjustments between signing and closing are often less relevant. We saw a mild decline from 71% in 2023 to 68% in 2024, which marks the end of an upwards trend in the use of the locked box mechanism over the past couple of years. This could be interpreted as a buyer-friendly trend.

Increased use of W&I insurance
The use of W&I insurance in life sciences M&A grew from 9% in 2023 to 15% in 2024. While still below the market average of 24%, the rise reflects growing interest in W&I insurance within the sector. Sellers, especially private equity sellers, want a clean exit with minimal liability. In most cases, their liability is capped at just one euro. At the same time, we have noticed in practice that underwriters are more willing to provide coverage in complex industries like life sciences.

Time limits for warranty claims
The use of limitation periods in life sciences M&A longer than eighteen months remained stable at 68%, while the figure across all sectors rose from 59% to 66%. A likely driver of this broader increase is the growing use of W&I insurance, which often makes sellers more comfortable accepting longer claim periods due to their limited liability under the transaction documents.

However, as the life sciences sector has historically been accustomed to longer time limits for claims, it appears that the increased use of W&I insurance (to levels that are still below those in other sectors) has not yet triggered an upward trend in the sector.

Earn-outs
The data shows a negligible decline in the use of earn-out mechanisms in life sciences M&A, from 33% to 31%, which percentage remains well above the cross-sector average of 25%. Earn-outs are traditionally more common in life sciences, as they help align incentives, particularly in people-driven businesses, by tying part of the purchase price to clinical, regulatory, or commercial milestones. Given their continued relevance in the sector, we do not expect this declineto turn into a downward trend.

Conclusion
The shift towards a buyer-friendly market is increasingly reflected in life sciences M&A deal terms, where dealmakers are relying on tools such as W&I insurance, MAC clauses, and earn-outs to manage ongoing regulatory and political uncertainties. The impact of Europe’s push to improve its investment climate remains uncertain. If successful, it could lead to more funding in the life sciences sector, intensifying buy-side competition. This could potentially reverse some of the buyer-friendly trends outlined in this article.

1 _{PwC - M&A Outlook 2025 and Deloitte: Life Sciences & Healthcare M&A Research 2024.}