Medtech gears up for a vintage acquisition year

Device deal making is back in a big way, despite the munificence of venture funds.

M&A

Judging by the merger and acquisition activity among medical device makers so far this year the pandemic is a thing of the past. Deals worth $31.5bn were closed in the first six months of 2021, outstripping the total for all of 2020. 

This is all the more startling given the vast amount of venture cash private medtechs can access; there is very little financial pressure for these groups to sell out. And, with eight megamergers already announced so far this year, the sector is not slowing down. 2021 could end up being a vintage year for consolidation.

The main factor behind this resurgence of acquiring is probably pent-up demand owing to the deals put on hold last year. Only 118 transactions closed in 2020, less than half the 10-year average, as buyers waited out the Covid-19 storm.

The below analysis considers deals done by device, diagnostics and digital health companies, excluding drug makers. It also excludes Spac deals, the mechanism by which half a dozen medical technology groups have gone public this year, often raising billions of dollars. That a relatively high number of M&As have closed, and a decent total reached, without including Spac deals again points to an environment in rude health.

The biggest deal to close this year was done by a company keen to bounce back from the Covid-19 doldrums. 

Siemens Healthineers was by no means the worst-hit big medtech during the lockdown period, but it was hit – its second-quarter 2020 revenues sank 7% and its profits were down by nearly a quarter. Its $16.4bn move on Varian puts it in a commanding position in diagnostic imaging and radiotherapy just as hospitals are reopening for more routine procedures in which these technologies are used. 

Other deals look in the other direction. Philips bought Biotelemetry for its remote patient monitoring technology, reasoning that the shift to telehealth, already apparent before the pandemic but very much accelerated by it, is here to stay.

Top five deals closed in H1 2021
Completion date Acquirer Target Value ($m) M&A focus
Apr 15 Siemens Healthineers Varian Medical Systems 16,400 Diagnostic imaging
Jun 2 Steris Cantel Medical 4,600 Endoscopy, general & plastic surgery, nephrology
Feb 9 Philips Biotelemetry 2,800 Patient monitoring
Jan 5 Exact Sciences Thrive Earlier Detection 2,150 In vitro diagnostics - liquid biopsy
Jun 17 Hologic Mobidiag 795 In vitro diagnostics - infection
Source: Evaluate Medtech.

With mergers worth a total of $23.9bn currently open, 2021 could end up having the biggest annual M&A total since 2017. Still, the largest open deal, the $8bn acquisition of the liquid biopsy company Grail by Illumina, remains mired in antitrust investigations. The European Commission is to rule on whether the deal can go ahead by July 27. After this the US FTC will decide whether to re-file a lawsuit seeking to block the move.   

There are, however, reasons to believe that the rate of M&A deal making might slow in the second half of 2021. Several publicly listed companies previously talked of as targets have seen startling growth in valuations, which might price them out of a potential buyer’s reach.

Penumbra might be one such. Shares in the group, which makes devices to retrieve blood clots from the vasculature, had a scorching start to 2021 and at the half-year point its market cap was just shy of $10bn. Though the company boasts an impressive forecast 15% annual growth rate out to 2026, and operates in the kind of neat segments – cardiology and neurology – that might appeal to several large medtechs, its high valuation might be enough to make potential acquirers think twice.

Deals have been relatively substantial this year, and the average deal value in the first half of 2021 was $1.1bn, the largest amount for a decade. 

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