Medtech M&A on course for the worst year in a decade

Data Insights

The medical technology sector has been so barren of acquisitions in the first half of 2013 that, should the trend persist, this year will be the most disappointing in a decade.

Only one deal closed in this period is worth more than $1bn, and considering that 2012 saw six ten-figure deals, the second half will have to feature some impressive hook-ups in order to compete (see tables). With the largest acquisition announced so far this year – that of sequencing company Life Technologies by Thermo Fisher Scientific – not expected to close until early 2014, the total spent this year could struggle to top $10bn (Thermo Fisher spends $14bn to finally get a Life, April 15, 2013).

Top 10 take outs closed in 2013 so far
Rank Acquiring Company Target Company or Business Unit M&A Deal Type Deal Value ($m)
1 Bayer Conceptus Company Acquisition 1,100
2 Stryker Trauson Company Acquisition 764
3 Bausch + Lomb Technolas Perfect Vision Company Acquisition 645
4 Illumina Verinata Health Company Acquisition 450
5 Wright Medical Group BioMimetic Therapeutics Company Acquisition 380
6 Argon Medical Devices Interventional Products Business of Angiotech Pharmaceuticals Business Unit 363
7 Linden Capital Partners (private equity firm) Young Innovations Company Acquisition 314
8 Danaher HemoCue Business Unit 300
9 Cynosure Palomar Medical Technologies Company Acquisition 287
10 Alere Epocal Company Acquisition 242

Without the Thermo Fisher deal and Valeant Pharmaceuticals’ acquisition of Bausch + Lomb, also announced in the first half but not yet closed, the largest take-out so far has been Bayer’s purchase of contraceptive device specialist Essure (Bayer sees fertile ground behind struggling Conceptus sales, April 30, 2013).

Compared with 2012 the $1.1bn transaction is a small deal, but by the usual value metrics, the price was well in excess of a typical acquisition. The $31-per-share cash offer beat even sell-side analysts’ price targets, which tend to take into account the possibility of M&A. This points yet again to a dismal year for take-outs.

In second place falls Stryker’s buy of Hong Kong trauma specialist Trauson for $764m, betraying an understandable interest in one of the fastest-growing medtech markets (Trauson trousers $760m as Stryker strikes, January 18, 2013). Such a relatively tiny deal so high in the table is a worry in itself: last year the Trauson deal would not have troubled the top 10. 

Top 10 take outs closed in 2012
Rank Acquiring Company Target Company or Business Unit M&A Deal Type Deal Value ($m)
1 Johnson & Johnson Synthes Company Acquisition 19,700
2 Hologic Gen-Probe Company Acquisition 3,700
3 Valeant Pharmaceuticals International Medicis Pharmaceutical Company Acquisition 2,600
4 Asahi Kasei ZOLL Medical Company Acquisition 2,210
5 Agilent Technologies Dako Company Acquisition 2,200
6 Boston Scientific Cameron Health Company Acquisition 1,350
7 FUJIFILM Holdings SonoSite Company Acquisition 995
8 Thermo Fisher Scientific One Lambda Company Acquisition 925
9 Medtronic China Kanghui Holdings Company Acquisition 816
10 Smith & Nephew Healthpoint Biotherapeutics Company Acquisition 782

With a mere $6.2bn spent so far this year, the situation in medtech is diametrically opposed to what has been seen in pharma and biotech. After three lacklustre years, the drug industry has begun to pick itself up (M&A shows signs of recovery, July 22, 2013).

Slimming down

Acquisitions of smaller device companies, which sometimes have just one product, are much more common in medtech than pharma. Despite this, 2013 has so far seen just 88 take outs. It is likely that the wider economic trends are partly responsible, but there is another explanation: many of the larger companies are selling rather than buying.

With Covidien, Abbott and J&J all moving to shed some of their businesses in an attempt to become more specialised and efficient, other firms may have opted out of burdening themselves with new buys and all the integration costs they entail.

Medtech acquisitions of last decade
Deal Completion Date Deal Value ($m) Deal Count
2013 YTD 6,233 88
2012 45,047 210
2011 76,189 231
    2011 (excluding Sanofi-Genzyme) 56,089 230
2010 49,383 239
    2010 (excluding Novartis-Alcon) 21,303 238
2009 12,606 154
2008 35,875 201
2007 49,789 231
2006 69,534 197
    2006 (excluding Boston-Guidant) 42,534 196
2005 20,793 181
2004 18,218 138
2003 10,496 119

The value of acquisitions in the medical technology space was already trending downwards (2012 sees largest pure medtech buy for seven years, but value of deals slump 27%, October 29, 2012). Even excluding the distorting effect of the mega-merger between Sanofi and Genzyme in 2011, the spend in 2012 was 20% lower than the year before. But if 2013 does not improve, the year-on-year drop in total spend will be 72%.

Judged on number of mergers, 2013 looks set to be the worst year since 2009, itself an extremely poor period. On total spend, though it is on track to be the worst since 2003.

To contact the writers of this story email Elizabeth Cairns or Joanne Fagg in London at news@epvantage.com or follow @LizEPVantage or @JoEPVantage on Twitter

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