Private equity buyout trend continues with Exactech

TPG Capital's purchase of the orthopaedics company Exactech is the first private equity buyout of a medtech player this year – but likely not the last, if recent trends continue. Over the past five years the increasing interest of PE groups in device makers has become obvious, with 2017 seeing 17 such takeovers (see analyses below).

But there are signs that this feeding frenzy might soon abate. Listed companies are, generally, riding high; no major megamergers that might result in divestitures are pending; and the trend for conglomerates to hone their focus by offloading non-core units seems to have run its course. Indeed, several recent medtech companies were sold by one PE shop to another. Perhaps much of the low-hanging fruit has already been plucked.

PE buyouts of medtech companies
Year No of deals
2014 7
2015 16
2016 19
2017 17
2018 to date 1

TPG Capital has forked out $49.25 per share for Exactech, which makes a range of orthopaedic implants for hips, knees and shoulders. Its initial bid, made in October, was $42 per share.

According to filings made by Exactech, the bid was pushed up by a counter offer of $49 per share from a non-US PE firm, received in November. Analysts from Gabelli and Company believe that the Swedish group EQT Partners was the other interested party.

The acquisition is the biggest to take a device company private since the Chinese firm Citic bought Biosensors International in 2015. This is because many PE acquisitions – particularly the larger deals – are of business units divested by larger medtech groups, often necessitated by their own M&A activity.

Top 5 deals where PE has taken a medtech group private in the last five years
Date closed Acquirer Target Value ($m) Focus
Nov 4, 2015 Citic Biosensors International 817 Cardiology
Feb 14, 2018 TPG Capital  Exactech 733 Orthopaedics
Oct 12, 2015 XIO Group  Lumenis 510 General hospital & healthcare supply; ophthalmics
Jul 17, 2017 Apax Partners Syneron Medical 400 General & plastic surgery; general hospital & healthcare supply
Jul 12, 2017 Gurnet Point Innocoll 209 General & plastic surgery; wound management

Still, all the megamergers signed in the past few years have already closed, so no major carve-outs of this kind are on offer at the moment. And the trend for larger companies to narrow their focus has also diminished: witness Becton Dickinson, which sold off its Respiratory Solutions unit in 2016 but a year later bought C. R. Bard, an extremely diversified company.

The peak of the PE boom was 2016, which saw 19 device developers being bought out; 2015 saw a similar number. The largest of these was EQT’s purchase of Siemens’ hearing aids business, which the German giant sold to streamline its operations and release value to shareholders. The company will this year divest its entire healthcare operations, but says this will not be done via a trade sale. Instead it is planning a partial float of its Healthineers segment (Siemens goes Deutsche on medtech business, November 30, 2017). 

With the supply of business units drying up and soaring valuations for listed companies, it is becoming more common that PE shops buy device companies from their peers. In 2013 Cinven paid nearly $2bn for Ceramtec, but announced in October that it would be selling the orthopaedic implant maker to a consortium led by the PE company BC Partners.

Another example is Tekni-Plex, a maker of medical tubing and sealants among other products, which was sold by American Securities to Genstar Capital in October. Separately Genstar, which appears to make a habit of these sorts of deals, sold Tecomet – another orthopaedic implant maker – to Charlesbank Capital Partners in May.

How long this merry-go-round can continue is anyone’s guess. 2018 will of course see other PE buyouts of medtech groups – but it might not be a surprise if the number of these deals begins to track downwards.

Top 10 PE buyouts of the past five years
Date closed Acquirer Target Value ($m) Focus
Jun 30, 2014 The Carlyle Group  Ortho-Clinical Diagnostics, subsidiary of Johnson & Johnson 4,150 In vitro diagnostics 
Jan 15, 2015 EQT Partners  Audiology Solutions business of Siemens (since renamed Sivantos) 2,669 Ear, nose & throat 
Sep 4, 2013 Cinven  Ceramtec 1,980 Orthopaedics
Nov 4, 2015 Citic Biosensors International 817 Cardiology
May 2, 2014 Montagu Private Equity Healthcare Devices and Prescription Retail business of Rexam 805 Drug delivery
Feb 14, 2018 TPG Capital  Exactech 733 Orthopaedics
Aug 28, 2015 Madison Dearborn Partners Patterson Medical, subsidiary of Patterson Companies 715 Physical medicine
Oct 12, 2015 XIO Group  Lumenis 510 General hospital & healthcare supply; ophthalmics
Oct 4, 2016 Apax Partners  Respiratory Solutions business of Becton Dickinson  500* Respiratory
Jul 17, 2017 Apax Partners  Syneron Medical 400 General & plastic surgery; general hospital & healthcare supply
*Valuation of the entire unit. Source: EvaluateMedTech.

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow @LizVantage on Twitter

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