Michael Barbella, Managing Editor11.10.22
The maxim “figures don’t lie but liars do figure” has long been attributed to Mark Twain.
Understandable, considering the superior quality of his work. But, truth be told, he was not actually the inventor of that axiom.
Twain was more of an editor than a creator in this case, likely paraphrasing the 1854 adage from its original form: “Figures won’t lie but men that draw up the tables may.”
Regardless of exact wording, the underlying message is clear—in their most basic form, figures (numbers, mathematical data) are factually truthful, but can be presented in misleading ways.
Case in point: medtech M&A in 2022. Activity was down compared to last year, as record high inflation, geopolitical unrest, global recession fears, and lingering supply chain troubles eroded investor confidence.
“What are some of the contributing factors...having [investors] pause a little bit? Inflation became real, it wasn’t transitory anymore, and the war in Europe—that was something we didn’t think about in 2021,” Dave Sheppard, managing director and COO of M&A advisory firm MedWorld Advisors, noted in an Oct. 6 webinar. “What we find is that buyers can deal with good news and they can deal with bad news, [but] where they become a little challenged in making decisions is [with] uncertainty.”
Such aversion to market ambiguity is evident in merger and acquisition activity this year. Deal value and volume fell considerably from 2021 levels, reflecting a shift in focus to integration and value-capture transactions, financial analysts claim.
Data from various industry sources confirm the decline in 2022 M&A activity, though each uses slightly different measuring tools. A PwC analysis, for example, found that semi-annualized deal value fell 85%, while J.P. Morgan statistics show a first half decline in venture capital investments. Financing for medtech diagnostics, digital therapeutics, and tools diminished 19.1% to $16.1 billion through June 30, the investment bank reported.
Deal volume was down as well. Stout’s healthcare and life science transaction totals posted double-digit decreases in the first half of 2022, falling 15.7% in Q1 to 438 deals and 36.8% in Q2 to 338 proceedings. While a weaker first half was expected given the bolus of transactions consummated late last year, the second-quarter decline was far greater than Stout analysts had anticipated.
The springtime slump makes sense in retrospect, as it coincided with worsening inflation, strict COVID-19 lockdowns in China, and escalating warfare between Russia and Ukraine (leading to higher gas prices and supply shortages). Yet the poor M&A showing tells only part of the story.
The other part (a very important one, incidentally) is the record level of M&A activity last year. “2021 was an incredible outlier year. It is by far the biggest year that M&A has ever seen,” MedWorld Advisors CEO and president Florence Joffroy-Black told webinar participants. “If you remember, things were kind of stopped in 2020, people waited, and in 2021, people started all over again. What’s interesting is we went up not only in the number of deals [in 2021] but also in the value of deals. 2021 will go down as a record year not only because of the value in deals but also because of the size of the mergers that took place.”
Transaction size was definitely a contributing factor to 2022’s downfall. The mega deals that helped bolster medtech M&A value last year (Thermo Fisher-PPD, $17.4 billion; Baxter-Hillrom, $12.4 billion; Steris-Cantel Medical, $4.6 billion) were missing in 2022.
In place of those larger acquisitions were smaller, capabilities-driven deals that helped enhance Beckman Coulter Diagnostics’ and Getinge’s Clinical Decision Support services (via StoCastic and FLUOPTICS, respectively); strengthen Frensenius Kabi’s IV drug offerings (courtesy of Ivenix); expand Becton Dickinson’s pharmacy technologies prowess (through Parata Systems and MedKeeper); and fortify Boston Scientific Corp.’s embolization proficiency (via Obsidio).
Some of the portfolio-enhancing deals were sizable, including BD and Parata Systems ($1.5 billion); ArchiMed and Natus Medical ($1.2 billion); ResMed and MEDIFOX DAN ($1 billion); Masimo and Sound United ($1 billion); Alcon and Aerie Pharmaceuticals ($770 million); and Sema4 and GeneDx ($623 million).
Not quite on par with last year’s activity.
Such a substandard performance, however, must be taken in context. Medtech M&A may indeed have been anemic this year compared with 2021 (an aberration, no doubt), but it nevertheless fared significantly better than in pre-pandemic years.
As Joffroy-Black agreed in the webinar, “Overall M&A activity in 2022 is still positive, even if the numbers tell a different story. There’s a lot of cash out there being used in deals. The level of cash used in M&A transactions has definitely gotten higher. If you look at healthcare...the deal count is down but it’s still a good number compared to 2020 or 2019. We are ahead of where we were then.”
Not a bad position to be in these days.
Understandable, considering the superior quality of his work. But, truth be told, he was not actually the inventor of that axiom.
Twain was more of an editor than a creator in this case, likely paraphrasing the 1854 adage from its original form: “Figures won’t lie but men that draw up the tables may.”
Regardless of exact wording, the underlying message is clear—in their most basic form, figures (numbers, mathematical data) are factually truthful, but can be presented in misleading ways.
Case in point: medtech M&A in 2022. Activity was down compared to last year, as record high inflation, geopolitical unrest, global recession fears, and lingering supply chain troubles eroded investor confidence.
“What are some of the contributing factors...having [investors] pause a little bit? Inflation became real, it wasn’t transitory anymore, and the war in Europe—that was something we didn’t think about in 2021,” Dave Sheppard, managing director and COO of M&A advisory firm MedWorld Advisors, noted in an Oct. 6 webinar. “What we find is that buyers can deal with good news and they can deal with bad news, [but] where they become a little challenged in making decisions is [with] uncertainty.”
Such aversion to market ambiguity is evident in merger and acquisition activity this year. Deal value and volume fell considerably from 2021 levels, reflecting a shift in focus to integration and value-capture transactions, financial analysts claim.
Data from various industry sources confirm the decline in 2022 M&A activity, though each uses slightly different measuring tools. A PwC analysis, for example, found that semi-annualized deal value fell 85%, while J.P. Morgan statistics show a first half decline in venture capital investments. Financing for medtech diagnostics, digital therapeutics, and tools diminished 19.1% to $16.1 billion through June 30, the investment bank reported.
Deal volume was down as well. Stout’s healthcare and life science transaction totals posted double-digit decreases in the first half of 2022, falling 15.7% in Q1 to 438 deals and 36.8% in Q2 to 338 proceedings. While a weaker first half was expected given the bolus of transactions consummated late last year, the second-quarter decline was far greater than Stout analysts had anticipated.
The springtime slump makes sense in retrospect, as it coincided with worsening inflation, strict COVID-19 lockdowns in China, and escalating warfare between Russia and Ukraine (leading to higher gas prices and supply shortages). Yet the poor M&A showing tells only part of the story.
The other part (a very important one, incidentally) is the record level of M&A activity last year. “2021 was an incredible outlier year. It is by far the biggest year that M&A has ever seen,” MedWorld Advisors CEO and president Florence Joffroy-Black told webinar participants. “If you remember, things were kind of stopped in 2020, people waited, and in 2021, people started all over again. What’s interesting is we went up not only in the number of deals [in 2021] but also in the value of deals. 2021 will go down as a record year not only because of the value in deals but also because of the size of the mergers that took place.”
Transaction size was definitely a contributing factor to 2022’s downfall. The mega deals that helped bolster medtech M&A value last year (Thermo Fisher-PPD, $17.4 billion; Baxter-Hillrom, $12.4 billion; Steris-Cantel Medical, $4.6 billion) were missing in 2022.
In place of those larger acquisitions were smaller, capabilities-driven deals that helped enhance Beckman Coulter Diagnostics’ and Getinge’s Clinical Decision Support services (via StoCastic and FLUOPTICS, respectively); strengthen Frensenius Kabi’s IV drug offerings (courtesy of Ivenix); expand Becton Dickinson’s pharmacy technologies prowess (through Parata Systems and MedKeeper); and fortify Boston Scientific Corp.’s embolization proficiency (via Obsidio).
Some of the portfolio-enhancing deals were sizable, including BD and Parata Systems ($1.5 billion); ArchiMed and Natus Medical ($1.2 billion); ResMed and MEDIFOX DAN ($1 billion); Masimo and Sound United ($1 billion); Alcon and Aerie Pharmaceuticals ($770 million); and Sema4 and GeneDx ($623 million).
Not quite on par with last year’s activity.
Such a substandard performance, however, must be taken in context. Medtech M&A may indeed have been anemic this year compared with 2021 (an aberration, no doubt), but it nevertheless fared significantly better than in pre-pandemic years.
As Joffroy-Black agreed in the webinar, “Overall M&A activity in 2022 is still positive, even if the numbers tell a different story. There’s a lot of cash out there being used in deals. The level of cash used in M&A transactions has definitely gotten higher. If you look at healthcare...the deal count is down but it’s still a good number compared to 2020 or 2019. We are ahead of where we were then.”
Not a bad position to be in these days.