2022 Medtech M&A activity fails to reach the heady heights of 2021
After a promising start to the year, medical device investors lost confidence during the second half of 2022. By Catherine Longworth.
conomic uncertainty significantly altered the medical device mergers and acquisitions (M&A) landscape in 2022 as deal value and volume shrunk compared to the previous year. A GlobalData analysis found a year-on-year decline in dealmaking as investor confidence declined due to market volatility and stopped the year’s deal volume from reaching the record-breaking heights that transpired in 2021.
“Q1 and Q2 of this year saw similar deal activity to 2021, but deals dropped off in Q3 as spending returned to a more rational pace and companies began to exercise more caution due to the state of the global economy,” explains GlobalData medical device analyst Ashley Clarke.
Instead of mega blockbuster deals, M&A activity in 2022 was dominated by smaller deals for start-ups and spin-off companies. Certain sub-sectors led the way, with in vitro diagnostics (IVD) and healthcare IT recording the most M&A in the year, which accounted for one third of deals by volume and over one half of deals by value.
The top 5 Medtech M&A deals recorded a combined value of $35 billion, a significantly lower sum than the top 5 of 2021, which totaled more than $91 billion. Many of the top deals were dominated by healthcare IT, signaling the continued interest of major technology corporations and institutional investors in this sub-sector.
“Trends in deal activity set an expectation that healthcare IT, and particularly telemedicine, will become an increasingly important part of healthcare over the next decade as a direct result of Covid-19,” explains Clarke.
“One legacy of Covid-19 is the increased use of telemedicine. During the pandemic, telemedicine or remote consultations were the only way many patients could access health care. Polls conducted by GlobalData consistently indicate that patients are also supportive of telemedicine as the pandemic recedes, creating long term market opportunities.”
AI and Big Data attract attention
The top themes driving key deals in the medical device sector were artificial intelligence (AI) and Big Data. The private investment firm, Bain Capital, acquired Evident, a provider of specialized health tech for $3.1 billion. Among its portfolio is an AI diagnosis tool using image data, alongside an augmented reality (AR) system for a stereomicroscope. In Big Data, tech giant Amazon acquired telemedicine provider One Medical for $3.9 billion. The company offers in-person and virtual care options and collects patient data, which will be beneficial for Amazon as it looks to strengthen its healthcare presence.
In September, pharmacy chain CVS beat Amazon in a fierce bidding war to buy home health technology services company Signify Health for $8 billion, marking a significant development for the US home health market. Dallas, Texas-based Signify has a network of over 10,000 health practitioners across the country who provide in-home health assessments via an advanced digital platform. CVS described Signify as an “anchor asset” that will push the American drug store into the home health care space.
Other notable M&A deals involved Bristol-Myers-Squibb’s $8 billion buy of Turning Point Therapeutics, a clinical-stage precision oncology company developing the drug repotrectinib. The drug is tipped to be a promising treatment for lung cancer and the FDA has already granted it a breakthrough therapy designation.
The agreement is another shrewd move for BMS which has increased its revenue by over 165% in the last decade due to significant acquisitions such as Celgene and MyoKardia. In the future, analysts predict the company could keep growing sales at an annual rate of around 2.5% in the medium term.
Abiomed tops M&A list
At a country level, the largest transaction of the year in the US saw Johnson & Johnson offering $16.6 billion to buy Abiomed, the US maker of Impella heart pump devices for treating coronary artery disease and heart failure. The Danvers, Massachusetts-based company generates revenues of more than $1 billion, with analysts predicting it could yield $1.5 billion annually by 2025, making it one of J&J’s most profitable operations. The transaction is J&J’s largest deal since it inked a $30 billion agreement to buy Swiss rare disease biotech Actelion in 2017, and is expected to close before the end of March 2023.
Although IPOs and mergers slowed down during the year, the value of investments for private equity firms increased in 2022, which is also being seen in other industry verticals. “Generally, this is being attributed to private equity firms spending at an unprecedented rate as they look to invest cash accumulated during the pandemic,” explains Clarke.
However, continued market ambiguity in 2023 could particularly impact private deals as sellers become slower to adjust expectations, possibly leading to renewed interest in structured deals to bridge value gaps. Special Purpose Acquisition Company (SPAC) deals are not being seen as a sustainable or attractive pathway for growth.
“We expect Medtech executives will remain focused on growth,” notes a PwC report on life sciences M&A in 2023. “Medtech companies should move beyond the traditional playbook of incremental product improvements, narrow M&A activity and investment in sales and marketing efforts. Executives should consider new strategies to accelerate growth and increase market share with a focus on ecosystem building, mastering care settings, and creating product enabled services.”
Deal activity will continue in traditional areas of medical technology such as cardiology and orthopedics, and despite the lackluster activity in 2022, M&A is tipped to resume at more normal levels in 2023. According to a Jefferies survey of healthcare leaders, the industry anticipates the M&A market will be busier in 2023, with 67% of corporates expecting more activity, and 74% of institutional investors saying deal activity will be higher.
In contrast, only 39% of private equity respondents felt the same way, suggesting a quieter year in the private markets and at the mid-market level. Responses from the survey also indicate there is a strong expectation for deal activity to involve public entities in 2023 and for companies to pivot away from China to reduce their exposure in its risky domestic market conditions.
“Deal activity remains strong, but the environment is making each transaction a lot harder to get across the line,” says Tommy Erdei, European Head and Global Co-Head of Jefferies Healthcare Investment Banking. “In the last couple of months, we are seeing the financing markets especially become very challenging for private equity-led transactions where it is having an impact and deals are even having to be put on hold due to lack of financing in the market. We hope this will improve as we head into next year as that will be a critical component of how next year turns out.”