The past few years have seen a boom in health care mega-mergers, with headline-worthy examples in both biopharma and medtech. In terms of total M&A deal value, 2014 was the most productive year in recent memory for medical devices, and 2015 was even more productive than 2014 for pharma. (See Exhibit 1.) (Also see Also see "Mega Medtech M&A Momentum In 2015" - In Vivo, 17 March, 2016..) This boom was fueled partly by the overcapacity that persists throughout the industry, particularly in support and commercial functions. That much is evident from the scale of the cost synergies announced in recent acquisitions. The largest acquisitions in the last year have declared significant cost synergies, even if that was not the main objective. In medtech, Medtronic PLC announced $850 million of cost savings when acquiring Covidien PLCin June 2014; and in Pharma, Pfizer Inc. announced a $2 billion cost synergy in the merger with Allergan PLC. [See Deal][See Deal]
However, these mega-mergers, while important in reducing overcapacity, have done little to change the rationale for most health care deals,...