March medtech merger madness
High asset prices and a need to release the pandemic’s brake on growth force medtechs to splash the cash.
The medtech industry has really gone for it on the M&A front this year. 2021 started strongly, with more than $10bn-worth of deals announced in January alone; this week’s deals, notably Boston Scientific’s acquisition of Lumenis’s global surgical laser business for $1.1bn in cash, puts 2021’s total so far at $16.7bn.
In fact 2021 has had the strongest first quarter for device maker deal-making since 2016 – and the year is barely two months old. Should the rumoured takeover of Livanova by private equity for a price just shy of $4bn come off, 2021 could end up with the strongest opening period for a decade.
Boston has been particularly keen this year, already buying the remote cardiac monitoring company Preventice in January for $925m up front. Its second even bigger deal will net it a portfolio of laser systems for urology and otolaryngology procedures, chiefly Lumenis’s Moses laser, used to break up kidney stones. Lumenis’s current owner, Baring Private Equity Asia, will keep Lumenis’s aesthetics and ophthalmology businesses.
Boston’s motivation for opening its chequebook is clear. The Covid-19 pandemic and its consequent lockdowns were catastrophic for the group, whose devices tend to be used in non-urgent procedures from which hospitals shied away so they could focus on coronavirus patients. A recent Evaluate Vantage analysis found that, out of the top 10 largest medtechs, Boston’s revenues sank the most in the fourth quarter of 2020 (Medtech’s haves and have-nots, February 24, 2021).
Thus the company’s enthusiasm for buying high-growth businesses. Lumenis’s surgical unit expanded at double-digit rates in the five years before Covid-19 hit, and net sales are projected to hit $200m in 2021. Boston is likely to make more acquisitions throughout the year, though perhaps it might scale back to smaller tuck-ins.
More to come
A second, smaller deal announced yesterday also has growth as its focus. Bio-Techne, which makes instruments and reagents for clinical diagnostics, bought Asuragen for $215m via a combination of cash and an existing line of credit. Asuragen specialises in genetic carrier screening for conditions such as Fragile X as well as oncology testing.
According to Leerink analysts, Asuragen’s sales are currently growing in the mid-teens annually, but Bio-Techne’s management reckons this can be upped to around 20%. It also intends to increase Asuragen’s operating margins to 40% over time.
As impressive as the first quarter has been so far in terms of medtech M&A, another billion-dollar buyout could be on the cards. Yesterday shares in Livanova climbed 3% on rumours of an $80-per-share bid from the private equity group Permira that would value Livanova at around $3.7bn.
Livanova has also been hit by the pandemic, with demand for its neuromodulators and heart valves taking a temporary knock. Its 2020 sales were down 14% compared with 2019 – an even greater drop than that experienced by Boston Scientific. Livanova ended up selling its valve franchise in December.
The Permira deal is far from a sure thing. Livanova is often talked of as a takeover target – the last time rumours swirled, a year or so ago, the putative buyer was Medtronic. Analysts from Berenberg believe that Permira’s offer is too parsimonious to garner significant shareholder support, despite Livanova’s investor base being frustrated by its depressed near-term earnings, partly owing to its high R&D spend.
The analysts write that a strategic buyer makes more sense, since such a group could realise greater synergies than a PE shop, and believe a price of around $100 per share could get a deal done. Still, they add that there are few obvious signs of strategic interest.
If Livanova is claimed by Permira or anyone else, the first quarter of 2021 will set the year up to be a record-breaker.