Value of medtech mergers down 80%
There was no way 2016 was going to even come close to the vast total value of medtech M&As closed in 2015, but even so at less than $17bn the total for the first half is tiny. At the half-year point in 2015, deals worth $34bn had been closed – even after excluding the most mega of megamergers, that of Medtronic and Covidien.
Including the Medtronic-Covidien tie-up, the total for H1 2015 was $84bn, meaning the H1 2016 total is only a fifth of what it was a year ago. Sector-wide pushes for scale are cyclical by nature, and to some extent the low-hanging fruit has already been plucked. And promisingly, the number of deals has remained fairly steady (see tables) – the sector may be returning to the mid-size deals that best reward innovation.
|Medtech acquisitions of the last decade|
|Completion Date||Value ($bn)||Count|
|2015 (excluding Medtronic-Covidien)||77.5||212|
Counting only those deals whose value was made public, the average size of the acquisitions closed in the last half-year was $401m, less than half that for H1 2015, even excluding the $50bn Covidien acquisition. But 106 deals were signed, compared with 96 this time last year.
This is probably a good sign. With the larger groups having moved on from the large scale-building they have pursued over the last couple of years there is now more room for the kinds of smaller, technology focused acquisitions that are the bread and butter of the medtech sector.
|Medtech acquisitions - H1 2016 v H1 2015|
|Completion Date||Value ($bn)||No of deals||No of deals with known value||Average deal size ($m)|
|H1 2015 (excluding Medtronic-Covidien)||34.2||95||41||835|
For every medtech start-up whose management is determined to make a go of it, intending to list at the first opportunity and eventually become a big-cap multinational, there are dozens whose ambition extends no further than developing a product, proving it works and selling themselves.
A trade sale of a start-up with a single invention, or maybe a handful of devices, is often the best way to bring the technology to the widest group of patients. The resurgence of smaller deals is, hopefully, a return to business as usual.
Dental, diagnostics and diabetes
Of course, some large mergers have been conducted. Dentsply’s $5.5bn merger with Sirona Systems has completed to produce the second largest maker of dental products with worldwide sales of $2.4bn last year. With an impressive growth rate of 13%, Dentsply Sirona is forecast to leapfrog Danaher to take the top spot in 2022 when it will do $5.6bn of business according to EvaluateMedTech data.
That deal was the only one of the top 10 mergers to be a strict scale play. All the others were more to do with repositioning; either gaining access to a new suite of technologies or pivoting to address a different, and growing, market.
Previously known mainly for its orthopaedics products, Stryker smartly moved towards the fast-expanding hospital sector with two deals inside a month, buying ICU device maker Sage Products and Physio-Control, which sells equipment including defibrillators and heart monitors for use by paramedics and the military as well as in hospitals.
Likewise Panasonic pivoted towards diabetes – a safe bet for an expanding market if ever there was one. Resmed, previously known for sleep apnoea devices, bought informatics specialist Brightree after the catastrophic failure of its ventilation device in a clinical trial for heart failure (ResMed crashes after death rate increase, May 15, 2015).
|Top 10 deals closed in H1 2016|
|Dentsply Sirona||Sirona Dental Systems||5,506|
|Thermo Fisher Scientific||Affymetrix||1,300|
|Panasonic||Diabetes Care business of Bayer||1,110|
|DiaSorin||Focus Diagnostics, subsidiary of Quest Diagnostics||300|
|Smith & Nephew||Blue Belt Technologies||275|
Otherwise the reasoning behind most of the mergers was largely to do with obtaining innovative technology.
Thermo Fisher Scientific paid a generous premium for genomics analysis group Affymetrix despite it being unprofitable, so it could get hold of promising technologies including non-invasive prenatal testing for diagnosing foetal genetic abnormalities from the mother’s blood. Smith & Nephew moved into robotic surgery by acquiring Blue Belt Technologies, whose tech, used to help perform orthopaedic procedures, should mesh well with S&N’s core products.
|Top 10 deals closed in 2015|
|Wright Medical Group||Tornier||3.3|
|St. Jude Medical||Thoratec||3.3|
|EQT Partners||Audiology Solutions business of Siemens||2.7|
|Cardinal Health||Cordis business of Johnson & Johnson||1.9|
That said, there are scale-building deals in the pipeline, with Abbott’s $25bn purchase of St. Jude Medical to close in the coming months.
Other companies have announced bolt-on deals that do not move them into new areas, such as Zimmer Biomet buying LDR for $1bn and Medtronic taking out HeartWare for slightly less. These are not scale plays, exactly, and they do bring in innovative tech, but they are not direction-changers.
Still, compared with the vast deals of last year, almost all of which were intra-segment consolidation, this is reassuring. It would not be a disaster if tuck-in technology-focused acquisitions take over from the headline-grabbers.