Venture-backed medtechs rush for the exit

A lot of money is sloshing around, and medical device start-ups are reaping the benefits.

Venture investors in medical device companies seem to have the Midas touch. VCs active in the healthcare space have been able to raise huge funds with relative ease in recent years, and in 2020 ploughed $6.4bn into private diagnostics and device makers. 

And they are seeing returns faster than they have for some time. A new Evaluate Vantage analysis finds that last year the median time to buyout or IPO for venture-backed medtechs dropped to below a decade. The precipitous drop in the wait for an acquisition is particularly eye-catching, and hopefully a sign of buyers’ faith in early-stage innovators. 

The companies that were acquired in 2020 found their buyers in a median of just 9.8 years from their foundation, in sharp contrast to the trend over the previous five years. From 2014 to 2019 the median time to M&A lengthened each year to reach 13.4 years – the longest wait for a decade. The analysis below considers buyouts of private companies only.

This sudden swiftness comes in spite of private medtechs enjoying relatively easy access to vast sums of venture cash, which should be enabling start-ups to remain independent for longer.

That said, maybe top-dollar bids are simply coming earlier. The big strategic medtechs that came out ahead during the pandemic are eager to put their accumulated cash to work – and many of those that suffered now have little choice but to buy in growth (Boston Scientific’s next move, March 5, 2021).

The pandemic was the direct cause of some of the acquisitions of young companies. Livongo, the telemedicine and remote patient monitoring group bought by Teladoc in October is a prime example.

The group’s technology is relatively easy to build and does not require the lengthy trials that medical implants, for example, tend to need. And, because telemedicine took off like a rocket under lockdown conditions, Livongo became an acquisition target pretty fast. Its backers, including Kleiner Perkins, Merck and Microsoft, got their exit a mere 5.8 years after Livongo’s establishment.

Similar trends will persist in the year to come. Buyers and venture investors alike are keen on liquid biopsy plays, and this tech too has blossomed under lockdown since it avoids the hospital visits necessitated by tissue biopsy. Thrive Earlier Detection is the poster child for a quick exit here, its takeout by Exact Sciences occurring barely a year and a half since it emerged from stealth.

Going public

IPOs, too, are happening earlier. The medtechs that made their stock market debuts last year did so a median of 9.9 years after their inception – the first time this figure has fallen under a decade since Vantage started tracking flotations.

The reasons underlying this trend are much the same as those behind a similar shrinking in time to IPO in biopharma (For a quick exit, head to the stock market, September 28, 2020). Investor appetite for healthcare stocks seems boundless, and the surprisingly strong performance of medtech stocks across 2020 will have helped too.
VCs know that this balmy climate is not going to last forever, and there could be an element of rushing to the stock exchange while the going is good here. 

The IPO window is still open, and several larger companies like Medtronic and Becton Dickinson having made plain their thirst for tuck-in deals, rather than larger transactions. It is not impossible that exits get even faster in the year to come.

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