Five-year low for medical device mergers

A return to tuck-in deals – sort of.

At the half-year point 2018 is shaping up to have the lowest spend on medical device M&A since 2013. With only two billion-dollar deals closed in the past six months the total disclosed spend is less than $12bn, compared with $48.8bn a year ago – though admittedly that figure was swollen by the closure of Abbott’s purchase of St. Jude Medical.

One of the interesting trends is private equity's continued interest in buying up medtech assets. Seven medtechs have been snapped up by private equity or other investors, including two of the top 10 deals. Private equity has grown much more comfortable with highly technical industries, while the lack of growth capital available to young and mid-stage device makers has allowed these investors to fill a gap – suggesting that more such deals are likely in future.

Altaris Capital, for example, looks to have grabbed itself an absolute bargain when it bought Analogic for less than its market worth. The target company was in difficulty, needing to build scale to invest in R&D and defend its market position, but had no way of getting a deal done. It ended up at Altaris’s mercy (Analogic succumbs to a take-under, April 12, 2018).

The only bona fide medtech megamerger, then, was Roche’s purchase of Flatiron Health for $1.9bn in April. But even this is not strictly a device deal.

Medtech acquisitions of the past decade
Completion date Value ($bn) No of deals No of deals with known value  Average deal size ($m)
H1 2018 11.9 67 36 329
2017 98.4 192 92 1,070
2017 excluding Abbott-St. Jude and Becton Dickinson-C. R. Bard 49.4 191 91 543
2016 48.1 244 105 458
2015 128.0 236 111 1,153
2015 excluding Medtronic-Covidien 78.1 235 110 710
2014 41.7 225 113 369
2013 23.3 237 104 224
2012 44.9 247 123 365
2011 59.6 275 133 448
2010 24.1 271 131 184
2009 13.9 180 85 164
Source: EvaluateMedTech.

Flatiron’s software collects data from patients’ health records to produce a databases that can be interrogated by researchers to various ends: speeding clinical trial enrolment and possibly the regulatory process too, or working out the most effective combinations of therapies. This last could be particularly useful in the cancer field, which is crucial to Roche’s ambitions (Roche spends $2bn for faster oncology work, February 16, 2018).

A return to bolt-ons?

The dearth of large deals means that the average size of first-half acquisitions is just $329m, much smaller than in recent years even when correcting for the megamergers that warp the figures for 2015 and 2017.

Whether this actually represents a return to the kind of tuck-in acquisitions that smaller medtechs tend to rely on is a different matter. For a start, in the first half of 2018 the fewest deals – just 67 – have been closed than at any half-year point since EP Vantage started tracking them in mid-2013. In 2017 the half-year total was 76, and the average since 2013 is around 84.

That said, the number of deals in the smallest size brackets is still falling. In the first half of this year, just 13 deals of less than $100m were closed, compared with 23 in the first six months of last year. It is deals in the $100m-$1bn bracket that are on the up – not exactly tuck-ins.

No of deals closed by size bracket
Completion date  $0-10m $10-100m $100m-1bn $1bn+
H1 2013 11 27 11 1
H1 2014 10 22 30 5
H1 2015 8 21 9 6
H1 2016 8 24 14 6
H1 2017 8 15 11 10
H1 2018 4 9 21 2
Note: only includes deals with known value. Source: EvaluateMedTech.

Perhaps the second half of the year will see a faster pace of deal-making. Six multibillion-dollar mergers are still open, including Roche’s purchase of the remainder of Foundation Medicine and Fresenius Medical Care’s acquisition of the home dialysis company Nxstage Medical.

And two of the six megadeals in the offing are private equity buys: Veritas Capital’s $1bn deal for the value-based care business of GE Healthcare and Platinum Equity’s purchase of J&J’s diabetes business, Lifescan, for $2.1bn. In fact there are six private equity medtech purchases still open, so this trend is not going away.

“The private equity world sees medtech as a real opportunity to build companies and then to sell them on,” says Tim Haines, a managing partner at the VC group Abingworth. “If you go back 15 or 20 years many private equity firms were more about balance sheet engineering – putting debt in, etc – but their world has changed, and they’re now much more operating-focused.”

On the flip side, he says, there is no question that there is a shortage of late-stage capital available to medtech businesses. Private equity groups are increasingly stepping in to help grow these companies, until they are ripe for acquisition or have sufficient revenues to go public. It is to be hoped that the increasing involvement of private equity turns out to be positive for the sector.

Top 10 deals closed in 2017
Completion date Acquirer Target Deal value ($m) Target focus
April 6 Roche Flatiron Health 1,900 Healthcare IT
June 22 Altaris Capital Partners Analogic 1,070 Diagnostic imaging
January 23 Weigao Group Argon Medical Devices 844 Anaesthesia & respiratory; blood; cardiology; drug delivery; endoscopy; gastroenterology; general & plastic surgery; obstetrics & gynaecology; orthopaedics; patient monitoring; radiology; urology; wound management
February 14 TPG Capital Exactech 737 Orthopaedics
April 30 Owens & Minor Surgical and Infection Prevention business of Halyard Health 710 General & plastic surgery
February 28 Stryker Entellus Medical 662 Anaesthesia & respiratory; ear, nose & throat; endoscopy; general hospital & healthcare supply
April 30 Boston Scientific NxThera 325 Endoscopy; urology
April 16 Boston Scientific nVision Medical 275 Endoscopy; obstetrics & gynaecology
April 6 Allergan Elastagen 261 General & plastic surgery; wound management
April 4 LivaNova TandemLife 250 Cardiology
Source: EvaluateMedTech.

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