US deals dominate medtech M&A

A recent EP Vantage analysis revealed that, in the biopharma world, European companies are splashing the cash on US-based takeovers, while a lot less is spent in the other direction. But in medtech the opposite is true: US acquisitions of European companies are worth much more than European takeouts of US groups (see tables below).

The reason for the discrepancy is probably down to scale and resources: European medtech companies are generally smaller and less well funded than their cousins across the pond. There have been several sizeable takeouts of European groups in recent years, raising the question of which larger companies in the region could still be acquired. The perennial takeover target Smith & Nephew seems like one obvious contender.

As for European companies that could strike deals of their own, the imaging giants Siemens and Philips might look to the US for bolt-on buys. But with many other European groups lacking the firepower of their US counterparts, the current trend looks set to continue.

Cross border acquisitions 

According to the latest analysis, US-on-US buyouts still made up the biggest chunk of the overall medtech deal value in the past five years, and today's $4bn deal between Danaher and Cepheid is another example (Danaher strikes again with Cepheid buy, September 6, 2016).

But the amount of dollars spent by US companies on European groups is not far behind. Even when Medtronic’s record-breaking $50bn purchase of Ireland-based Covidien is excluded the value of US-on-Europe deals is still well above those flowing from Europe to the US.

European venture capitalists are much more risk-averse than those in the US, which has led to a particularly pronounced early-stage funding gap in on the continent (Vantage Point – Risk-averse European VCs drive medtech start-ups to crowdfunding, April 21, 2015). This means that European medtech groups find it harder to grow, so are more likely to be seen as prey rather than predator.

European VCs have raised several big medtech-focused funds this year, which could help address this funding gap (Vantage Point – Will medtech venture capital return to early-stage investments?, April 27, 2016). 

Even so, it could take a long time for any benefit to trickle down in the form of a greater capacity to carry out acquisitions. The trend of big US groups buying European companies, either for their technology or to gain more tax-friendly headquarters, looks like it is here to stay for a while.

A lower tax rate was one consideration behind the biggest ever medtech deal, Medtronic’s $50m purchase of Covidien, with which the US company gained an Irish domicile – although the bigger group insisted that it was not all about tax.

The Medtronic-Covidien buy accounts for most of the overall value of US acquisitions of Irish groups. If it is excluded, the most popular countries for US companies to do deals were Switzerland and the UK, which both have more attractive corporate tax rates than the US.

US on EU – top five 2010-15
Acquirer Target Deal value ($bn)
Medtronic Covidien 49.9
Johnson & Johnson Synthes 19.7
Dentsply Sirona 5.5
Baxter Gambro 3.9
Thermo Fisher Phadia 3.4

Meanwhile, among the European groups looking to the US, Irish companies were the biggest spenders. However, many of these deals came from Covidien and Allergan – effectively US operations domiciled in Ireland. This trend was also seen in the pharma industry (Few M&A teams venture beyond domestic borders, August 24, 2016). 

The biggest purchase of a US group by a European company was in fact a mixed medtech/pharma buy: Novartis’s acquisition of Alcon gave it a portfolio of intraocular lenses and surgical equipment as well as ophthalmic drugs.

Endo is another pharma specialist that bought into devices through its acquisition of American Medical Systems – but it later sold off most of that unit to Boston Scientific (Endo exits medtech – almost, March 2, 2015).

It seems that while European companies can mix it with the big boys in the pharma industry, in medtech they are still the poor cousins. Until the funding situation changes, this is likely to continue to be the case.

EU on US – top five 2010-15
Acquirer Target Deal value ($bn)
Novartis Alcon 9.6
Endo International American Medical Systems 2.9
Covidien ev3 2.6
Fresenius Liberty Dialysis Holdings 1.7
Grifols Novartis’s blood transfusion diagnostics business 1.7

To contact the writers of this story email Madeleine Armstrong or Edwin Elmhirst in London atnews@epvantage.com or follow @medtech_ma or @EPVantage on Twitter

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