Medtech mergers surge again

Either buyers are being pickier or the pool of targets is dwindling.

After a quiet 2016, medtech mergers are back. The sum spent on deals in the first half has already surpassed last year’s total, putting 2017 on track to be the second-biggest year for medtech acquisitions in a decade, behind only a mammoth 2015 (see tables below).

The average deal value in the first half of 2017 was also above that seen last year, even when the biggest takeover – Abbott’s $25bn swoop for St. Jude Medical – was excluded. However, the actual number of acquisitions looks set to fall well short of 2016, suggesting either buyers are being pickier or the pool of targets is dwindling.

Medtech acquisitions of the past decade
Completion Date Value ($bn) No of deals No of deals with known value  Average deal size ($m)*
H1 2017 48.8 76 34 1,435
    H1 2017 excluding Abbott-St. Jude 23.8 75 34 699
2016 48.1 234 99 486
2015 127.9 233 103 1,242
    2015 excluding Medtronic-Covidien 78.0 232 103 758
2014 40.8 221 111 368
2013 23.3 235 101 231
2012 44.9 247 117 384
2011 49.8 272 126 395
2010 24.1 271 127 190
2009 13.9 180 81 172
2008 27.4 231 105 261
*Includes only deals with disclosed value; Source: EvaluateMedtech.

The latter possibility is perhaps not surprising after several years of medtech consolidation and a venture capital squeeze that has made it harder for earlier-stage companies to get funding. The latest figures could represent more bad news for start-ups, suggesting that acquirers are eschewing smaller, technology-focused deals in favour of bigger buys aimed at growing their footprint in a particular area.

A look at the top-10 purchases in the first half of 2017 supports this theory. Apart from the obvious Abbott-St. Jude buy – which made it the number-two cardiology player – other scale-building takeovers include Johnson & Johnson’s acquisition of Abbott’s eye care business and two deals from Allergan in the aesthetic surgery arena.

Indeed aesthetics, once at the fringes of medtech, is now a popular area for M&A with 10 takeovers closed in the first half. A field in which patients are willing to pay out of pocket is doubtless attractive as more traditional sectors face growing pricing pressure.

This trend looks set to continue with another aesthetics player, Syneron Medical, being acquired by Apax Partners in a deal set to complete in mid-July, while Cutera has also been touted as a potential target.

Top 10 deals closed in H1 2017
Completion date Acquirer Target Value ($bn) EP Vantage coverage
January 4 Abbott Laboratories St. Jude Medical 25.0 Abbott and St. Jude – it’s official
February 27 Johnson & Johnson Abbott Medical Optics, subsidiary of Abbott 4.3 J&J sees a future in Abbott’s eye care business
February 1 Allergan LifeCell, subsidiary of Acelity 2.9 Acelity offloads Lifecell to Allergan for $2.9bn
April 3 Svenska Cellulosa Aktiebolaget BSN medical 2.9 -
April 28 Allergan Zeltiq Aesthetics 2.5 Two deals in two days means aesthetics is looking good
January 31 Grifols Blood screening business of Hologic 1.9 -
March 22 Hologic Cynosure 1.7 Two deals in two days means aesthetics is looking good
January 20 Terumo Portion of vascular closure business of Abbott 1.1 Abbott’s vascular tech is big in Japan
February 17 Teleflex Vascular Solutions 1.0 Teleflex-Vascular takes 2016’s medtech merger total to $73bn
February 06 ICU Medical Hospira infusion systems business of Pfizer 0.9 -
Source: EvaluateMedtech.

Of course, big players will always be interested in promising new technologies, and five smaller deals by J&J should give younger companies hope, although financial details were not disclosed. With six acquisitions in total, J&J was the most prolific buyer in the first half.

J&J’s bolt-on deals in H1 2017
Target Technology Date closed
Expandable cage technology business of Interventional Spine Spinal surgery devices Jan 2017
Megadyne Medical Products Electrosurgical tools Jan 2017
Torax Medical Interlinked titanium beads for gastroesophageal reflux disease, or faecal incontinence Mar 2017
Neuravi Clot retrieval devices for stroke Apr 2017
Sentio Nerve localisation technology for spine surgery Jun 2017

Still, the mega-merger is back in vogue and it is notable that nine out of the top-10 deals in the first half were worth $1bn or more, versus only five in the first half of 2016 (Value of medtech mergers down 80%, July 7, 2016). 

If deal activity continues at the same pace, 2017 could see nearly $98bn spent on medtech M&A – double last year’s total – but with only around 150 transactions, versus 234 in 2016. It seems acquirers are willing to shell out, which is good news for the lucky few – but not so much for everyone else.

To contact the writer of this story email Madeleine Armstrong or Elizabeth Cairns in London at [email protected] or follow @ByMadeleineA or @LizVantage on Twitter

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