Mergers and acquisitions in the medical tech industry

M&A Mergers & Acquisitions

Main article: M&A Mergers & Acquisitions

Investment in medical tech

Main article: Investment in medical tech

Digital medicine

Main article: Digital medicine

2023: Medical Technology Deals All But Stalled

After booming in 2021, which offset a lack of investment deals in 2020, the number of mergers and acquisitions (M&A) as well as the amount of venture capital investment in medical technology have a steady downward trend. Such information was published in a report by Evaluate Medtech, which became known on July 25, 2023.

According to analysts at Evaluate Medtech, in 2022 the volume of mergers and acquisitions in this sector amounted to just under $65 billion, which is significantly higher than in 2020 ($28.8 billion), but still lower than in 2021, when the volume of such transactions exceeded $80 billion.

According to the analysis, in the first six months of 2023, the volume of M&A transactions amounted to only about $13 billion. And this decline in 2023, judging by the results of the analysis of the first half of the year, may become even more rapid, analysts say. If this trend continues in the second half of the year, then by the end of 2023, the volume of transactions in the field of medical technologies may reach the lowest level in the last decade - since 2013, when it amounted to $23.3 billion.

According to analysts, this can also lead to the fewest transactions in recent years - the figure may turn out to be even less than in pandemic 2020, when 126 M&A deals worth about $30 billion were concluded. And although only 81 deals were struck in 2022, their combined volume of $65 billion meant that the average deal size in 2022 was the highest in the last decade - $1.2 billion.

For comparison, in 2023 the transactions were less large-scale - their average size was about $312 million. Only four of all M&A deals in the first half of the year crossed the billion-dollar milestone. The largest transaction as of the end of July 2023 was an agreement on the purchase by Bain Capital of Olympus's scientific solutions business at a price of $3.1 billion, which was announced in August 2022; the deal closed in April 2023.

However, it seems that the situation is starting to change. Just days after the release of the Evaluate Medtech report, technology companies struck medical several big deals. Thus, the Danish the company Coloplast offered $1.3 billion for the purchase of Icelandic Kerecis, which uses intact fish skin to produce human wound care products. At the same time, for Thermo Fisher Scientific posted $912.5 million the manufacturer of the analysis platform. data CorEvitas

The first half of 2023 was also marked by particularly low levels of venture capital investment in the industry. According to Evaluate Medtech, only about $2.5 billion has been invested in medical technology startups over these six months, the lowest since 2015. If this pace continues until the end of the year, then 2023 will be another year of "fall" compared to $7.3 billion raised by venture capital funds in 2022, when everything returned to normal after the level of 2021 - then the volume of investments in medical tech startups amounted to $9.9 billion.

Of the 65 investment announcements in the first half of 2023, only four marked a nine-figure amount and only one financing exceeded $200 million. In April 2023, HeartFlow received $215 million from a group of venture capital investors led by Bain, which compared to the last round of venture capital financing, HeartFlow itself was negligible.

And in a difficult economic situation, all these private companies remain so. According to Evaluate Medtech, there were "exactly zero" IPOs in medical technology in the first half of 2023.^[1]

2020: M&A volume in medical tech industry shrinks by a third

In mid-January 2021, the EY report was released, according to which in 2020 the number of mergers and acquisitions in the medical industry fell from 31 (in 2019) to 23, and the total value of transactions fell from $46 billion to $31 billion. The main series of acquisitions came in the third quarter, while in the first half of the year there was practically no activity. EY notes that if the amount of transactions concluded in the first half of 2020 amounted to about $2 billion, then in the third quarter alone the amount of transactions amounted to $26 billion.

Because telehealth is not generally considered part of the medical technology industry, EY data does not include the purchase of Teladoc Livongo the $18.5 billion remote patient monitoring company, which was one of the health care biggest deals in the field in 2020.

Until the pandemic gripped the United States, analysts predicted that 2020 should be successful for mergers and acquisitions in the field of medical technology. Many companies achieved a solid stable position in 2019, and the overall growth of the industry was more than 6%. However, the economic blow caused by the pandemic and a significant decline in planned medical care changed the intended course.

The volume of mergers and acquisitions in the medical industry in 2020 decreased by a third

However, the sales figures of companies should improve as the situation with the pandemic normalizes. In addition, the number of acquisitions may begin to grow due to low activity in the industry and liquidity growth during 2020. According to EY, these trends will complement the available resources and become the driving force behind future deals.

There are a lot of levers on the market that CEOs and CFOs can use to accelerate the growth of their companies after the COVID-19 pandemic. We believe the M&A deals will be one of those levers, analysts said.

According to EY, the pandemic can still limit the number of transactions in 2021, since the slow deployment of vaccination against COVID-19 and high hospitalization rates will further reduce the amount of planned medical care. The high cost of medical technology can also slow down the deal-making process.

Volume of mergers and acquisitions in the medical industry, value of transactions for 2014-2020

Wall Street analysts have already assessed the prospects for the development of medical technology for 2021, despite the fact that the number of COVID-19 cases continues to grow and hospitals are overcrowding. The industry will certainly face economic problems in the first months of the year, but analysts from William Blair, J.P. Morgan and BofA Securities believe that in the second half of the year, when planned assistance resumes and vaccines from COVID-19 will become more affordable, medical companies may again rise.

EY Director of Medical Technology Jim Welch believes that the main area of ​ ​ development will be diagnostics, since these companies were least affected during 2020, and before the pandemic, this sector was among the most active. While analysts have raised concerns that vaccination will limit the demand for testing, the industry has pushed back against those claims.

The long-term prospects of the diagnostic market remain favorable, "Welch said. - The major companies in this industry are still incredibly strong. And the speed with which they provided mass testing and innovation only gives us confidence.

Analysts also predict that traditional medical companies will mainly purchase digital health and remote patient monitoring firms, the use of which has increased sharply during the pandemic. Similar deals have already begun at the end of 2020, when Philips acquired BioTelemetry, a remote heart monitoring company, for $2.8 billion.^[2]

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