M&A Activity Increases M&A transactions have proven to be more resilient than IPOs in this

M&A Activity Increases
M&A transactions have proven to be more resilient than IPOs in this challenging economic climate. During the last decade, medical device M&A activity increased in terms of dollar volume, with a grand total of $320.4 billion spent on medical device M&A transactions. Following peak activity in 2007 and 2008, there was a dramatic drop in M&A deals in 2009. However, the past two years have seen medtech M&A activity levels rebound.

In 2011, medtech saw a major uptick in M&A with the aggregate value of the 2011 transactions at about $63 billion, compared with about $41 billion for 2010, both way up from a historic low of $13.8 billion in 2009. In 2011, eight medtech transactions were valued at more than $1 billion, compared with four in 2010 and three in 2009.

The mammoth acquisition by Johnson & Johnson (J&J) of privately held Swiss trauma device maker Synthes for $21.3 billion, announced on April 27 last year, was the largest medtech M&A transaction of 2011. The Synthes acquisition is the third largest medtech transaction in history, and J&J’s largest acquisition ever. 2011 saw two other large medical device acquisitions with Danaher Corporation’s June 29 acquisition of biomedical laboratory instrument maker Beckman Coulter for $6.3 billion, and Apax Partners’ Nov. 4 acquisition of wound care company Kinetic Concepts for $6.8 billion. The medical device merger trend is continuing, as evidenced by the March 12, 2012, announcement that automated external defibrillator maker Zoll Medical will be acquired by Japan’s Asahi Kasei for $2.2 billion.

Recent M&A activity has been driven by a consolidation strategy that is influenced by several factors, most notably the acquisition of novel technologies and the achievement of sales synergies. Pressed by the struggling economy, top-tier medical device makers are expected to continue their M&A binge, especially as a means to enter new markets and diversify their product offerings. As the acquisitions of 2011 illustrate, medtech companies want to acquire leading-edge technologies with high potential for growth. It is no surprise that entrepreneurial owners of privately held medtech companies, venture capitalists, and private equity owners are all expected to explore the M&A route for exiting from medtech investments made over the past several years.

A number of established medtech companies are bargain hunting by acquiring distressed or bankrupt companies hurt by the economic downturn, rather than through highly leveraged buyouts. For medical device companies, intellectual property assets are a primary driver of value in deals. By creating a comprehensive strategic patent portfolio, medtech companies can maximize opportunities for potential M&A transactions.