Medtech On Course For $100bn In Mergers By Year-End

by: EP Vantage

The first half of 2015 saw 86 mergers and acquisitions in the medtech industry- a pretty average number for the first half of a year. The figure for the total value of mergers closed, however, is anything but average: at $83bn, it dwarfs even the full-year figures for the past decade and is without question the highest total ever recorded. At year-end, 2015 could see closed deals worth more than $100bn for the first time ever in the sector.

The biggest acquisition in the sector’s history, that of Covidien by Medtronic for $50bn, makes up the lion’s share of the total, though sizeable buys by Zimmer and Becton Dickinson played their part (see table below). It will be many years before this total is surpassed. The future ought to see a return to the more measured pace of deal-making seen in prior years, and this is no bad thing.

The deal that created the world’s largest medtech company distorts the picture so much that it comes as rather a surprise that only six deals worth over $1bn have closed in the first half – just two more than in the first half of 2014 (First-half medtech acquisition value surpasses 2013 total, July 22, 2014).

That said, another seven $1bn-plus medtech purchases have been announced and are not yet closed, so the top ten table at the year-end point could be megadeals all the way.

Medtech acquisitions of the past decade
Completion date Value ($bn) Count
H1 2015 83.4 86
H1 2015 (excluding Medtronic-Covidien) 33.5 85
2014 39.3 200
2013 26.7 214
2012 43.1 234
2011 45.2 252
2010 22.6 266
2009 13.2 172
2008 26.4 222
2007 51.4 261
2006 70.0 220
2006 (excluding Boston-Guidant) 43.0 219

After the $10bn-plus megadeals it is interesting to see the fourth and fifth places taken by divestments from the same company: Siemens. The German conglomerate has performed poorly over recent years, and selling its hospital IT business to the medical records company Cerner and its hearing aids to private equity group EQT Partners is part of a plan to refocus on higher-margin areas.

Patterns

There are few discernible patterns among the biggest takeouts this year. They cover disparate technological areas – from cardiology to diagnostics, respiratory to drug delivery – and while the two biggest deals were about building scale and consolidation, others have involved a company moving into an entirely new area. Eurofins had had little to do with in vitro testing before it bought Boston Heart Diagnostics, for example.

Top 10 takeouts closed in H1 2015
Acquirer Target Value ($m)
Medtronic Covidien 49,900
Zimmer Biomet 14,000
Becton Dickinson CareFusion 12,200
EQT Partners Audiology Solutions business of Siemens 2,669
Cerner Siemens Health Services 1,300
Philips Volcano 1,200
BTG PneumRx 475
Thermo Fisher Scientific Advanced Scientifics 300
Eurofins Scientific Boston Heart Diagnostics 200
TE Connectivity AdvancedCath 190

There is a hint of a trend in that Boston Heart and Volcano were both somewhat troubled companies. Boston Heart, a maker of lab-developed or homebrew tests is the subject of an investigation by the US Department of Health and Human Services and the US Department of Justice, accused of paying doctors to use its testing services rather than one of its competitors.

The interventional imaging company Volcano had been knocked badly by missed revenue forecasts, and was in the grip of investor activism when Philips stepped in (Philips buys Volcano and hopes it will not get burned, December 17, 2014). Hopefully the Dutch giant can run the business more successfully, and its decision to offload its lighting business and refocus on health tech will prove sound.

Top 10 takeouts announced in 2014
Acquirer Target Value ($m)
Thermo Fisher Scientific Life Technologies 13,600
Consortium of Investors Ortho-Clinical Diagnostics 4,150
Danaher Nobel Biocare 2,200
Essilor International Transitions Optical 1,855
Grifols Blood transfusion diagnostics business of Novartis 1,675
Smith & Nephew ArthroCare 1,500
The Cooper Companies Sauflon Pharmaceuticals 1,200
Covidien Given Imaging 860
Sterigenics International Nordion 805
Ansell BarrierSafe Solutions International 615

It could be that these are canny buys: the acquirers cheaply obtaining businesses whose troubles are transitory and whose potential will be effectively realised with a larger sales force or a brief spike in investment.

But the reason 2015 will be remembered is the Medtronic deal. It was the first deal in a decade to top $20bn, and will almost certainly hold the top spot for another 10 years.

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