Medtech: The rising M&A wave

In a recent insight, we looked at how cybersecurity has been a sector that has bucked the M&A downturn caused by COVID-19. Following an initial dip in March, the sector’s increased relevance and its recent history of producing disruptive young companies drove dealmaking during the crisis in a trend that looks set to continue.

In many ways, medtech resembles the cybersecurity sector. They are both sectors with a mix of big, established companies and disruptive SMEs, they are at the forefront of cutting-edge technology and they all have direct relevance to life during COVID-19. What’s more, these are booming sectors that attract considerable investment from every angle, including public funding, private investment and grants.

An initial downturn

Unlike cybersecurity, however, medtech M&A suffered significantly during the initial wave of COVID-19. According to PwC, the total value of medtech takeovers tracked during the first half of the year was under $2 billion and deal volumes fell 15 per cent.

Of course, medtech is a word referring to a hugely diverse industry and there were some anomalies within subsectors. Deal volumes in biotechnology for instance increased by close to a quarter, but overall, the trend across the first half of the year was downward.

During the first half of the year, issues such as supply chain problems, a lower availability of capital, regulatory and political uncertainty and, of course, the impact of COVID-19 saw M&A drop off. Overall, many firms, whether buyers, sellers or target acquisitions, were likely more focused on crisis management, rather than M&A.

Dealmaking bounces back

Since August, however, there has been a significant upturn in medtech and life sciences M&A, with the medtech sector seeing several large deals since August, such as Teladoc’s $18.5 billion acquisition of digital health firm Livongo.

To put this turnaround in context: PwC tracked $35 billion in deals across the pharma, biotech, medical device, diagnostic and related sectors in the first 6 months of the year. In the second half of the year, this figure was surpassed in just seven weeks.

Overall, it seems that there are several factors that are driving a wave of M&A in medtech and that, in the coming months, this is only likely to get bigger. With this in mind, we’ll examine some of the contributors to what looks set to be a strong, sustained period of dealmaking.

Big players dip into war chests

The aforementioned Teladoc acquisition of Livongo was one of a slew of big deals in the medtech sector that kicked off the second half of the year, suggesting that the industry’s bigger operators were ready to flex their acquisitive muscles.

Another factor to consider in this vein is private equity firms, who are also likely to have considerable funds at their disposal. Of course, for parties with the capital at their disposal to make acquisitions, there is likely to be no shortage of attractive targets, including cash-deficient companies at a discount.

Slimming down and re-focusing

However, not all large firms will have huge piles of capital lying around with which to hoover up distressed companies.

Many will be facing uncertainty themselves and, as such, some M&A could be driven by major companies divesting assets, divisions and even whole subsidiaries as they look to cut costs, raise capital or refocus on their core offerings.

Distressed innovators

One sub-sector in particular could provide especially ripe pickings for acquisitive companies: medical devices. Since the COVID-19 pandemic set in, elective procedures have seen a huge drop-off, fuelled by both formal government restrictions around the world and a reluctance among patients to put themselves at risk or overload healthcare systems by entering hospital settings.

This has had a major impact on companies that manufacture medical devices, many of which are small or medium-sized enterprises. This, combined with existing pricing pressures, could lead to consolidation within the sector as companies look to survive and remain competitive.

Many of these companies are highly innovative and, outside of the current circumstances, would have completely viable businesses. This will make them attractive acquisition targets, particularly as their struggles might mean they are available at lower prices.

Furthermore, sales at these companies could be set to bounce back in a big way once the healthcare industry returns to normal and the huge backlog of elective medical procedures begins to be worked through. Therefore, such companies could represent low-risk, low-cost, high-reward propositions.

Other innovative mid-size companies, such as bio-tech firms looking into oncology, cell therapy and gene therapy, will also continue to be attractive to bigger players hoping to ramp up their research and development (R&D) and technical expertise capacities as they look beyond COVID-19.

Coronavirus-concerned firms

In contrast to medical device companies that have hit hard times, companies with offerings relevant to the ongoing worldwide fight against COVID-19 have found themselves thrust firmly into the global spotlight.

Whether they are involved in vaccine development, diagnostics, the manufacture of PPE or even making ventilators, firms that can contribute to tackling the virus have seen sales and funding increase massively.

Many such companies will become acquisition targets themselves, while others may look to utilise their newfound capital to fund acquisitions of their own.

The shift to digital continues

A key feature of the medtech industry in recent years has been the drive towards digitisation in patient care and treatment as companies look to make healthcare more efficient and responsive to the needs of modern patients.

Such is the strength of the digital healthcare industry, it has proven to be one of the few medtech sub sectors which saw M&A activity only minimally disrupted by COVID-19. According to Mercom’s 1H Digital Health Funding and M&A report, the first half of 2020 saw 83 acquisitions in the digital healthcare sector, down from 91 in 1H 2019.

In the wake of COVID-19, which has seen unprecedented pressure put onto global healthcare systems, the onus on digital companies to produce technology that makes healthcare provision smoother and more efficient will be even greater and demand for their services will only grow.

As M&A accelerates across medtech, we can expect to see the small and mid-size innovators in this sub-sector continue to be sought-after targets.



Medtech has long been an active sector in M&A and, following an initial lull, it seems likely that this will only become more so as a result of COVID-19. Like cybersecurity, the sector already represents the perfect mix of innovative small and medium-sized firms and bigger companies to encourage dealmaking.

COVID-19 has added several intriguing factors into this landscape. Firstly, in the form of distressed companies that have fallen victim to the worldwide economy essentially being put on pause. Many of these companies will represent attractive acquisitions, potentially at even more attractive prices. While the flipside of this is bigger companies looking to make divestitures and slim down.

Secondly, there are those companies that have seen their stock rise due to their relevance in the face of the pandemic. These include companies working on things such as the equipment or treatments to fight the virus, as well as those companies, such as Fernartz, that could help to make the healthcare of the future more efficient in the face of such challenges.

If there’s one thing that the pandemic has shown, it’s that lives are saved when healthcare is more efficient, not to mention safer for both patients and healthcare professionals. Innovative companies on the cutting edge of medical technology have the means to help this happen and, as a result, could become even more important acquisition targets than they were in the pre-COVID-19 world.

All considered, medtech could prove to be one of the most prominent and vital sectors in the near future as M&A, and the world at large, continues to adapt to the challenges posed by COVID-19 and responds to the questions it has raised about the future of healthcare and medicine.

Share this article

Latest Businesses for Sale

---

---

---

View more businesses for sale