M&A Activity Slowed by Recession, Limited Visibility

The battered financial landscape of the last year has slowed merger and acquisition activity in the medical device market, noted Timothy Schmidt, vice president at Capstone Partners, LLC, an investment banking firm based in Boston, Mass. The worldwide recession, low valuations and limited visibility have caused venture capital firms to be selective in their funding of medical device companies.

Deals that have gone forward in spite of the credit crunch and Wall Street meltdown have been more conservative than in the past, he told an audience of OEMs and contract manufacturers on the last day of the fourth annual Orthopedic Design & Technology Conference in Fort Wayne, Ind.“Buyers have been very cautious,” Schmidt said. “They have been investing in companies that are solid and have all their ducks in a row.”

Besides the conservative nature of recent mergers in the outsourcing sector, the deals also favor companies that provide either “one-stop shopping” services or specialized capabilities, Schmidt said. OEMs, he added, are attracted to suppliers or contract manufacturers that can provide an array of services because it allows them to focus on their core competency. Similarly, companies that provide a niche service to their partner or have good working relationships with suppliers are attractive to large OEMs because they help build credibility and open up markets that previously may have been inaccessible.

Schmidt said he does not expect the merger and acquisition market to remain sluggish for very long. Once economists and investment bankers get a better sense of the stability of the debt market and healthcare reform begins to take shape, merger activity will resume. “Some very nice deals are going to play out,” he said.