Private equity and venture capital investors are moving cash into the medical and health technology industry at the moment. If you’re currently looking to purchase a business and are sector-agnostic, then spending some time understanding the dynamics of the latest breed of medical and healthcare enterprises may well turn out to be a profitable activity.
Why is medtech so hot?
A number of factors have combined to create the perfect conditions for the medtech sector to flourish in the UK. These factors are also largely responsible for the parallel boom in healthtech. Healthtech is about preventative and analytic systems; medtech is about cure-based systems, often found in hospitals. Of course there is a considerable, grey area of crossover.
Nurturing medical innovation
Back in 2014 London spawned MedCity, a hub for life sciences research, development and commercialisation. The initiative was jointly created by King’s College London, The University of Oxford, UCL, The University of Cambridge and Imperial. Medcity is intended to support the life sciences industry in the South East of England in particular. Amongst other things, the initiative is intended to help small healthtech start-ups find the funding they need to grow their businesses.
One of its key purposes is: ‘Facilitating and supporting collaboration across all parts of the sector to turn innovations into commercial products and services.’
With billions being invested in medtech startups worldwide over the past few years, schemes that help to scale and develop these burgeoning firms are vital. Luckily, in the UK, new programmes such as ‘HS’ are being launched to do just that. Much like the MedCity concept, the scheme’s mission statement says it intends to “build and scale healthcare technology businesses, help larger organisations drive healthcare innovation at a corporate level, and position the UK at the forefront of innovation in global healthcare.”
Meanwhile, pharmaceutical giant Pfizer has also recently announced it will be running its Healthcare Hub grant programme for the second year in a row. The scheme offers grants to start-ups developing innovative, tech-driven products and services to help clinicians and patients.
Changes in the pharmaceutical industry
Medtech firms are disrupting some of the big pharma businesses. Growth in the pharmaceutical sector is expected to slow over the coming years. Digital innovation, big data and artificial intelligence is going to radically change the way things are done in the pharmaceutical sector. This will range all the way from drug discovery through to clinical development, assessment of their effectiveness in the real world and calculating the value of new drugs. The majority of new medtech innovations are going to stem from startups, which are already becoming very attractive acquisition prospects for larger players, who are seeking growth and profits in an environment where research costs are rising and pressure to reduce drug prices is intensifying.
PE turning towards B2B
Falling confidence among consumers means that business buyers and investors alike are beginning to focus on firms that sell to other businesses rather than to consumers. The rapidly growing medtech and healthtech sectors seems like an obvious place to look for those interested in moving their cash away from businesses that rely directly on consumer whims. Medtech is seen as an industry that will be reasonably unaffected by economic or consumer trends.
A recent example is the purchase of Xstrahl, an innovative x-ray business, by private equity firm Risk Capital Partners, which traditionally invested in the restaurant industry.
Risk Capital Partners’ chair, Luke Johnson, recently explained to Sky News: "We still like hospitality but clearly these are challenging times for the sector, so spreading risk makes sense.” On the future of his latest acquisition, he said, ”Xstrahl plans to grow both organically and via strategic acquisitions in medical devices and equipment."
In April 2018, UK private equity investor Quinag Acquisitions agreed to buy a controlling stake in Indian medtech business Healthium MedTech Private Limited. The purchase of the firm, which is the top medical devices business in the sub-continent, is further evidence of the appetite among British PE investors for medical technology businesses.
Overseas buyers also looking to UK medtech
The pace of innovation in the UK healthtech sector, combined with the relative cheapness of UK companies at this point in time has drawn considerable interest from abroad.
US healthcare giant GE Healthcare has recently purchased UK digital healthcare pioneer Monica Healthcare, which specialises in producing bluetooth-connected fetal monitoring systems.
In a similar but more consumer-focused move, Netherlands-based technology giant Philips has bought London-based business app business Health & Parenting Ltd. The purchase will help Philips to bolster its own parent-focused platform uGrow.
Chinese investors specifically are pouring money into medical and biotech startups. Their government is fully supportive, as Beijing seeks to beciome a global leader in new medicines. According to Pitchbook, Chinese venture capital funds have lifted the value of cash injections to foreign medical startups ten-fold within a year. China is now the world’s second-largest drug market. The country is easing up medical rules and restrictions regarding new drugs and medical technologies, resulting in foreign firms eager to enter the market - often that involves selling equity to ease the way.
While UK healthcare entrepreneurs look far and wide for opportunities to expand…
London-based Simon Rasalingham, who founded Medica Group tele-radiology services provider in 2003 - selling it on in 2013, has just purchased Behold.AI - a promising healthtech firm based in Wisconsin. He now hopes to help the team at Behold.AI develop their medical imaging technology and sell it into the NHS back in the UK.
Meanwhile, AIM-listed Ideagen, a Nottingham-based software business, has announced a GBP6.2m purchase of New York-based Medforce Technologies, which specialises in healthcare software and has 300 American healthcare customers.
Ideagen’s Chief Executive, David Hornsby, explained: "Medforce has established an extremely compelling value proposition and brings to the group a complementary solution offering, a talented workforce and long-term customer relationships which further strengthens our position in the US healthcare market."
It’s clear from the investment and activity within the medtech sector that it is a very exciting space in which to be doing business. As a business buyer, purchasing a start-up operating in this industry could be a shrewd move. Medtech and healthtech firms largely sell to business buyers, which means your investment is protected to an extent from fluctuations in consumer confidence. In addition, the changing way big pharmaceuticals are operating and the increasingly strained NHS are both reasons why healthcare innovation is such a hot topic. Getting in on the game now could enable you to be part of a major growth industry looking to solve some of world’s most challenging problems.
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