Is the FTC Partly Responsible for Muted M&A Activity?

The bumpy ride continues.

Last year’s sharp decline in medtech dealmaking is showing no signs of abating despite solid corporate earnings reports and a stable (for now) U.S. economy.

Data from several industry sources shows merger and acquisition (M&A) activity further deteriorating this year and possibly reaching its lowest levels in more than a decade. Market intelligence specialist Evaluate Medtech counted 42 deals (worth $13.1 billion) at the year’s midpoint, a consequence of the poor M&A appetite among major device firms.

Venture financing is no better off: Total raised funds through June 30 was $2.5 billion, its smallest sum in eight years, and initial public offerings dried up altogether, Evaluate Medtech data indicate. Staying this course will likely beget rock-bottom valuation and deal volume totals, the company warns.

The reasons for the dealmaking dry spell are numerous and varied: declining share prices, high interest rates, market volatility, recession fears, cost-cutting measures, inflation, and geopolitical issues, among others. Such forces seem woven into the business fabric now, making investment more of a challenge.

“Continued uncertainty in the overall financial markets continues to weigh on the M&A appetite,” John Babitt, Americas Medtech Transactions Leader at Ernst & Young LLP, said in the firm’s Pulse of the industry medical technology report 2022. “the overall medtech M&A and innovation ecosystem continues to remain intact, but near-term storm clouds are likely to pause transactions volumes into 2023.”

Swirling within those storm clouds is a more formidable anti-trust regulatory environment that also could be contributing to medtech’s dealmaking dearth.

“We think a challenging anti-trust regulatory environment is the biggest factor weighing on M&A,” Neehdam & Co. senior analyst Mike Matson wrote in a June 30 report.

Biggest factor? Maybe. Conducive factor? Certainly.

Several high-profile deals scrutinized by the Federal Trade Commission (FTC) this year have collapsed. The first to fall was Boston Scientific Corp.’s bid for a majority stake (64%) in Korean surgical tools company M.I. Tech. Announced in June 2022, the $230 million deal would have given Boston Scientific co-ownership of M.I. Tech’s HANAROSTENT product line—conformable, non-vascular, self-expanding metal stents that Boston Scientific has distributed in Japan since 2015.

Expected to close in late 2022, the acquisition was contingent upon certain conditions, including global regulatory approvals that Boston Scientific said it was unable to obtain. The company consequently scrapped the deal in May (2023) and instead is purchasing a 10% stake in M.I. Tech.

The FTC welcomed Boston Scientific’s decision, issuing a statement from Bureau of Competition Director Holly Vedova that read: “I am pleased Boston Scientific and M.I. Tech have abandoned their proposed transaction in response to investigations by FTC staff and our overseas enforcement partners. The FTC will not hesitate to take action in enforcing the antitrust laws to protect patients and doctors.”

True to its word, the FTC also blocked CooperCompanies’ $875 million takeover of Cook Medical’s reproductive health business, first affirmed in February 2022. Like the Boston Scientific-M.I. Tech deal, CooperCompanies’ transaction also was subject to customary regulatory approvals.

Doubts about the agreement first surfaced last summer after CooperCompanies indicated the agreement faced regulatory opposition over market competition. At that time, the firm told analysts it was exploring various options to close the deal, including potentially selling certain Cook assets in the United States and abroad. That option, however, never panned out, leaving CooperCompanies with little hope in closing the deal. By June, it became apparent the agreement was likely to collapse, though it took until Aug. 1 for confirmation—via a statement from the FTC.

“Following a full-phase investigation by FTC staff, CooperCompanies’ decision to abandon this proposed acquisition ensures that critical reproductive health markets remain competitive,” Vedova said. “The FTC is committed to protecting patients from higher costs and preserving the incentive to innovate. This deal termination protects competition and is a win for patients.”

Anti-trust regulators could endanger Illumina’s $8 billion acquisition of Grail as well. The FTC opposed the purchase on the grounds it would curb competition in the cancer-testing market but a federal judge disagreed last fall.

“As we’ve stated from the outset, this transaction is procompetitive, will advance innovation, lower healthcare costs, and save lives. We are pleased that, after considering the evidence, the [administrative law judge] has reached the same conclusion,” Illumina General Counsel Charles Dadswell said in a statement.

Perhaps, but now Illumina must prove its case to the U.S. Securities and Exchange Commission (SEC), which is currently investigating the August 2021 merger. The company disclosed the SEC investigation in a 10-Q form filed Aug. 10.

News of the SEC investigation broke about a month after the European Commission fined Illumina roughly $478.9 million for completing the Grail deal before the governing body could determine whether it was anti-competitive. The Commission affirmed such a finding within weeks of the deal’s closing.