Florence Joffroy-Black and Dave Sheppard, MedWorld Advisors06.01.22
Medtech companies have orchestrated many noteworthy portfolio moves in recent years. Specialty acquisition corporations (SPACs), M&As, and divestitures (the sale or “spinoff” of a business unit) are creating interesting market dynamics. However, these events can have a significant impact on OEM suppliers.
M&A activity naturally leads to some industry consolidation (fewer players in key market sectors), which in turn, creates performance pressure for OEM suppliers as larger merged companies whittle down their approved vendor lists.
SPACs are interesting because they come in many flavors. In some cases, a SPAC is the result of a private company turning public but in other cases, it is spawned from a merger (or a reverse merger, technically). One recent example of a medtech industry SPAC is Corza Medical, which was created last winter from the combination of Surgical Specialties Corporation and the TachoSil Fibrin Sealant Patch. In December 2021, Corza Medical acquired Katena Products Inc., a Parsippany, N.J.-based company focused on ophthalmic surgery devices.
Divestitures also help expand the industry, as these transactions typically free up new capital to support the newly-created independent company that has been separated from its “mother” conglomerate. But if the divestiture is simply a sale of a business unit from one conglomerate to another, it’s less impactful.
Using data from Mergr, we’ve analyzed the portfolio moves by some of the Top 30 medtech companies and their resulting impact(s) on OEM suppliers.
Medtronic: The world’s largest medical device firm has acquired 58 companies, including 12 in the past five years. That’s a lot of acquisitions. It has also divested four assests via sales to other companies. Last summer, Medtronic bought Intersect ENT for $1.1 billion. As is typical with most acquisitions nowadays, Medtronic’s supply chain professionals immediately went to work once the deal was complete to figure out how to consolidate vendors between the two companies.
Johnson & Johnson: With 57 M&A deals (40 purchases and 17 entities sold), the New Brunswick, N.J.-headquartered firm has been a very lively manager of its portfolio across all business segments. Most recently, J&J announced plans to spin off its $15 billion consumer health business in 2023 (at a cost of $500 million to $1 billion). The move will likely help J&J’s current medtech suppliers, since the company will have more capital to spend on its current medical devices and pharmaceutical business activities.
Abbott: The medical device/healthcare conglomerate has also been very active by participating in 33 acquisitions and eight divestitures, including some major multi billion-dollar purchases and sales in recent years—i.e., selling Abbott Medical Optics to J&J in 2017, and purchasing both St. Jude Medical Inc. ($25 billion) and Alere Inc. ($5.3 billion). The recent parting of Abbott’s STARLIMS informatics suite (and related businesses) to global investment firm Francisco Partners should be healthy for STARLIMS’ growth and its vendors’ expansion as well.
Philips: Twenty years ago, Royal Philips was a multi-faceted conglomerate with interests across various industries, including Domestic Appliances and Lighting. But through a flurry of M&A moves (33 purchases and 13 sales), Philips is now a highly focused top-tier medical device manufacturer. Last spring, Philips shed its Domestic Appliances business, selling it to Hillhouse Capital for $4.4 billion, and in November 2021, the company expanded its cardiac diagnostics and monitoring portfolio by purchasing Cardiologs. Unfortunately, some of Philips’ other purchases have injected some instability in its supply chain, but that’s fodder for a different column.
GE Healthcare: Facing pressure from competitors like Siemens Healthineers, GE has responded by engaging in both M&A and strategic partnerships. While it has purchased 27 companies and sold 11, GE Healthcare has also been forging alliances to bolster its competitive edge. For example, after Siemens Healthineers bought Varian Medical Systems Inc. for $16.4 billion (August 2020), GE Healthcare partnered with Elekta (Varian’s major competitor) to expand access to precision radiation therapy solutions.
BD: This major conglomerate has significantly reshaped its portfolio over the last five years through M&A, starting with the $24 billion purchase of C.R. Bard Inc. in 2017. Besides dynamically changing the shape of the company, the acquisition also likely put pressure on smaller OEM vendors to become a “one-stop shop” to help their customers save time and money. Separately, BD’s 2018 divestiture of Vyaire Medical to private equity firm Apax Partners created new opportunities (with fresh capital) for Vyaire suppliers. Additionally, the recent IPO spinoff of BD’s $1 billion diabetes care business unit creates new opportunities for investment into the company’s diabetes products and will be helpful to OEM suppliers serving this segment.
Siemens Healthineers: This company was created through an IPO spinoff from Siemens AG in 2018, generating fresh capital for investment in the medtech industry and benefitting all current and potential Healthineers suppliers. Siemens Healthineers’ 2020 acquisition of Varian Medical Systems would never have occurred if Siemens did not spin off its healthcare business.
Cardinal Health: With 48 M&A transactions (39 purchases and nine divestitures), Cardinal Health is another vigorous manager of its business unit portfolio. Although it is constantly under pressure due to its lower-than-industry-standard margins, Cardinal is actively acquiring and purging its businesses to improve the mother ship. Its relatively low margin performances puts pressure on OEM suppliers on a continuous basis. The company’s 2021 divestiture of its Cordis business to private equity firm Hellman & Friedman is allowing for fresh capital in Cordis’ products, which should create new opportunities for suppliers.
Stryker Corp.: Averaging more than two acquisitions per year, Stryker—with a total of 39 purchases and four sales—is one of the most energetic M&A players in medtech. The company’s $3 billion acquisition of Vocera Communications in February should beget new opportunities for its OEM suppliers as new market segments and product opportunities are created. An acquisition that likely forced some of Stryker’s vendors into some forms of synergies (i.e., consolidation) was the $4 billion purchase of Wright Medical Group in 2019.
Baxter International: This Deerfield, Ill.-based firm most recently transformed itself through M&A—specifically, last year’s $10.5 billion acquisition of Hillrom. Until that time, most of Baxter’s transactions were incremental “add-on” deals targeting its core market segments. The Hillrom purchase dramatically changes the market segments and opportunities within the combined entity. It will be interesting to observe how this merger plays out within Baxter and for its suppliers.
In summary, OEM suppliers are highly impacted by these continuous portfolio moves by the medtech industry’s leading players. Smaller companies and suppliers must carefully consider these moves when planning their long-term growth strategies and potential partnerships with OEM customers.
Florence Joffroy-Black, CM&AA, is a longtime marketing and M&A expert with significant experience in the medical technology industry, including working for multi-national corporations based in the United States, Germany, and Israel. She currently is CEO at MedWorld Advisors and can be reached at florencejblack@medworldadvisors.com or at www.medworldadvisors.com.
Dave Sheppard, CM&AA, is a former medical technology Fortune 500 executive and is now focused on M&A as a managing director at MedWorld Advisors. He can be reached at davesheppard@medworldadvisors.com.
M&A activity naturally leads to some industry consolidation (fewer players in key market sectors), which in turn, creates performance pressure for OEM suppliers as larger merged companies whittle down their approved vendor lists.
SPACs are interesting because they come in many flavors. In some cases, a SPAC is the result of a private company turning public but in other cases, it is spawned from a merger (or a reverse merger, technically). One recent example of a medtech industry SPAC is Corza Medical, which was created last winter from the combination of Surgical Specialties Corporation and the TachoSil Fibrin Sealant Patch. In December 2021, Corza Medical acquired Katena Products Inc., a Parsippany, N.J.-based company focused on ophthalmic surgery devices.
Divestitures also help expand the industry, as these transactions typically free up new capital to support the newly-created independent company that has been separated from its “mother” conglomerate. But if the divestiture is simply a sale of a business unit from one conglomerate to another, it’s less impactful.
Using data from Mergr, we’ve analyzed the portfolio moves by some of the Top 30 medtech companies and their resulting impact(s) on OEM suppliers.
Medtronic: The world’s largest medical device firm has acquired 58 companies, including 12 in the past five years. That’s a lot of acquisitions. It has also divested four assests via sales to other companies. Last summer, Medtronic bought Intersect ENT for $1.1 billion. As is typical with most acquisitions nowadays, Medtronic’s supply chain professionals immediately went to work once the deal was complete to figure out how to consolidate vendors between the two companies.
Johnson & Johnson: With 57 M&A deals (40 purchases and 17 entities sold), the New Brunswick, N.J.-headquartered firm has been a very lively manager of its portfolio across all business segments. Most recently, J&J announced plans to spin off its $15 billion consumer health business in 2023 (at a cost of $500 million to $1 billion). The move will likely help J&J’s current medtech suppliers, since the company will have more capital to spend on its current medical devices and pharmaceutical business activities.
Abbott: The medical device/healthcare conglomerate has also been very active by participating in 33 acquisitions and eight divestitures, including some major multi billion-dollar purchases and sales in recent years—i.e., selling Abbott Medical Optics to J&J in 2017, and purchasing both St. Jude Medical Inc. ($25 billion) and Alere Inc. ($5.3 billion). The recent parting of Abbott’s STARLIMS informatics suite (and related businesses) to global investment firm Francisco Partners should be healthy for STARLIMS’ growth and its vendors’ expansion as well.
Philips: Twenty years ago, Royal Philips was a multi-faceted conglomerate with interests across various industries, including Domestic Appliances and Lighting. But through a flurry of M&A moves (33 purchases and 13 sales), Philips is now a highly focused top-tier medical device manufacturer. Last spring, Philips shed its Domestic Appliances business, selling it to Hillhouse Capital for $4.4 billion, and in November 2021, the company expanded its cardiac diagnostics and monitoring portfolio by purchasing Cardiologs. Unfortunately, some of Philips’ other purchases have injected some instability in its supply chain, but that’s fodder for a different column.
GE Healthcare: Facing pressure from competitors like Siemens Healthineers, GE has responded by engaging in both M&A and strategic partnerships. While it has purchased 27 companies and sold 11, GE Healthcare has also been forging alliances to bolster its competitive edge. For example, after Siemens Healthineers bought Varian Medical Systems Inc. for $16.4 billion (August 2020), GE Healthcare partnered with Elekta (Varian’s major competitor) to expand access to precision radiation therapy solutions.
BD: This major conglomerate has significantly reshaped its portfolio over the last five years through M&A, starting with the $24 billion purchase of C.R. Bard Inc. in 2017. Besides dynamically changing the shape of the company, the acquisition also likely put pressure on smaller OEM vendors to become a “one-stop shop” to help their customers save time and money. Separately, BD’s 2018 divestiture of Vyaire Medical to private equity firm Apax Partners created new opportunities (with fresh capital) for Vyaire suppliers. Additionally, the recent IPO spinoff of BD’s $1 billion diabetes care business unit creates new opportunities for investment into the company’s diabetes products and will be helpful to OEM suppliers serving this segment.
Siemens Healthineers: This company was created through an IPO spinoff from Siemens AG in 2018, generating fresh capital for investment in the medtech industry and benefitting all current and potential Healthineers suppliers. Siemens Healthineers’ 2020 acquisition of Varian Medical Systems would never have occurred if Siemens did not spin off its healthcare business.
Cardinal Health: With 48 M&A transactions (39 purchases and nine divestitures), Cardinal Health is another vigorous manager of its business unit portfolio. Although it is constantly under pressure due to its lower-than-industry-standard margins, Cardinal is actively acquiring and purging its businesses to improve the mother ship. Its relatively low margin performances puts pressure on OEM suppliers on a continuous basis. The company’s 2021 divestiture of its Cordis business to private equity firm Hellman & Friedman is allowing for fresh capital in Cordis’ products, which should create new opportunities for suppliers.
Stryker Corp.: Averaging more than two acquisitions per year, Stryker—with a total of 39 purchases and four sales—is one of the most energetic M&A players in medtech. The company’s $3 billion acquisition of Vocera Communications in February should beget new opportunities for its OEM suppliers as new market segments and product opportunities are created. An acquisition that likely forced some of Stryker’s vendors into some forms of synergies (i.e., consolidation) was the $4 billion purchase of Wright Medical Group in 2019.
Baxter International: This Deerfield, Ill.-based firm most recently transformed itself through M&A—specifically, last year’s $10.5 billion acquisition of Hillrom. Until that time, most of Baxter’s transactions were incremental “add-on” deals targeting its core market segments. The Hillrom purchase dramatically changes the market segments and opportunities within the combined entity. It will be interesting to observe how this merger plays out within Baxter and for its suppliers.
In summary, OEM suppliers are highly impacted by these continuous portfolio moves by the medtech industry’s leading players. Smaller companies and suppliers must carefully consider these moves when planning their long-term growth strategies and potential partnerships with OEM customers.
Florence Joffroy-Black, CM&AA, is a longtime marketing and M&A expert with significant experience in the medical technology industry, including working for multi-national corporations based in the United States, Germany, and Israel. She currently is CEO at MedWorld Advisors and can be reached at florencejblack@medworldadvisors.com or at www.medworldadvisors.com.
Dave Sheppard, CM&AA, is a former medical technology Fortune 500 executive and is now focused on M&A as a managing director at MedWorld Advisors. He can be reached at davesheppard@medworldadvisors.com.
