M&A Accelerates During the Pandemic—2021 Year in Review

The pundits were right.
 
They watched medtech profits tank last year during COVID-19’s initial assault, then gradually rebound in the second half. They knew of the changes ahead for U.S. tax laws, and the likely implications for publicly-traded companies. They observed the steady buildup of liquidity among major players throughout 2020. And they sensed the pent-up demand that had been bubbling up like magma in the industry during the pandemic.
 
The pundits could draw only one conclusion from their observances: a strong rebound in M&A activity this year, fueled by a record high of nearly $500 billion in financial firepower.
 
“There’s a lot of liquidity in the market,” John Babbitt, EY’s MedTech leader for the Americas, said in early January. “There are only so many levers that CEOs and CFOs can pull to enhance growth coming out of COVID. We do think, from what we’re hearing, that M&A is going to be one of the levers that they’re going to be relatively aggressive on.”
 
Aggressive might be putting it mildly. Medical technology companies were downright fanatical with that lever in 2021, generating a bumper crop of deals that are sure to change the face of the industry. The number of 2021 transactions surpassed 2020’s total by mid-year, with buyouts occurring in virtually every industry sector.
 
Deal scale varied widely, as did buyer/seller size. Price tags ranged from $60 million (CooperCompanies-obp Medical Corporation) to $17.4 billion (Thermo Fisher Scientific Inc.-PPD), while small companies participated in the merger mania alongside medium-sized firms, OEMs, and multi-national conglomerates.
 
The latter group, flush with cash, forged most of the year’s billion-dollar-plus buyouts. Thermo Fisher Scientific won top prize in deal value, purchasing clinical service provider PPD in a $17.4 billion transaction that should bolster its clinical research service offerings to pharmaceutical and biotech customers.
 
Baxter brokered the second-largest deal, purchasing connected care provider Hillrom for $10.5 billion. Reportedly in the works for months, the procurement—worth about $12.4 billion, including debt—aims to accelerate digitally-enabled connected healthcare by improving patient access to hospital-level services at home or in other settings.
 
The acquisition is scheduled to close early next year and expected to help grow Baxter’s earnings by over 20 percent within the three years thereafter (through 2025). The Sept. 2 merger followed a string of Hillrom’s own purchases over the past few years, including two that occurred just two weeks apart this past winter.
 
In mid-January, Hillrom announced plans to acquire cardiac wearables manufacturer Bardy Diagnostics Inc. for $367 million, then purchased contact-free continuous monitoring technology from EarlySense for $30 million on Feb. 1. Hillrom incorporated EarlySense’s contact-free continuous monitoring and analytics technology into its Centrella Smart+ med-surg bed and ecosystem of connected devices.
 
Hillrom tried breaking off the Bardy Diagnostics engagement in March, claiming its future partner failed to meet closing conditions, but the company eventually finalized the merger agreement (under court order) in early August.
 
The Bardy Diagnostics betrothel (its initial promise, anyway) transpired amid a flurry of M&A deals that marked the start of 2021. Included among them was:
 

• STERIS plc’s $4.6 billion pickup of Cantel Medical Corp., which augments STERIS’s infection control business and launches the company into the dental market;
• Stryker Corp.’s purchase of privately-held OrthoSensor Inc., whose Verasense technology could further enhance the orthopedic behemoth’s Mako robots;
• Hologic Inc.’s tuck-in takeovers of SOMATEX Medical Technologies GmbH ($64 million) and Biotheranostics Inc. ($230 million). The women’s health champion welcomed three other companies into the fold this year—Diagenode, a privately held, European developer/manufacturer of molecular diagnostic assays and epigenetics products ($159 million); Mobidiag Oy, a privately held, Finnish-French molecular diagnostic tests/instrumentation developer ($795 million); and advanced energy vessel sealing surgical devices manufacturer Bolder Surgical ($160 million);
• Royal Philips N.V.’s $695 million bid for Capsule Technologies Inc., whose medical device information platform connects “almost all existing” medical devices and electronic health records in hospitals through a vendor-neutral system that gathers and analyzes patient data;
• Thermo Fisher Scientific’s $450 million union with privately-held molecular diagnostic maker Mesa Biotech Inc. The acquisition adds Mesa’s PCR-based Accula rapid point-of-care test platform for SARS-CoV-2, Influenza A and B, RSV, and Strep A to Thermo Fisher’s portfolio of tests;
• Haemonetics’ $510 million coupling with Cardiva Medical, strengthening its hospital portfolio in the interventional and electrophysiology markets. Cardiva sells Vascade and Vascade MVP, devices that use collagen plugs to close the vascular access sites created in catheter-based coronary, peripheral, and electrophysiology procedures;
• Boston Scientific Corp.’s $925 million pairing with cardiac monitoring firm Preventice Solutions Inc., whose products include short-term and long-term holter cardiac monitoring devices. The purchase was the first of five Boston Scientific made this year, scooping up Lumenis Ltd.’s global surgical business in March ($1.07 billion), acquiring the remaining 73 percent shares of Farapulse Inc. in June ($295 million), buying Devoro Medical Inc. in September ($336 million), obtaining Baylis Medical Company Inc. in October ($1.75 billion).

 
“A number of drivers are contributing to record deal flow this year,” John LeRosen, partner at Los Angeles-based private equity firm Vance Street Capital, told MPO. “According to Pitchbook, middle market PE M&A volume is on pace to surpass the prior annual record set in 2019 as a result of pent up demand from the COVID slowdown in 2020, business owners acting in advance of anticipated tax changes, and the amount of available capital from PE funds and direct lenders.”
 
“Medtech companies weathered the pandemic much better than expected and have money to invest in acquisitions,” noted Craig Ackerman, a principal at the Alexander Group and leader of the firm’s Medical Device practice. “From a PE perspective, there seems to be a significant amount of money chasing deals, causing some of our partners to take on a bit more risk than is typical. In some cases, this entails taking on a ‘fixer upper’ from a go-to-market standpoint, with the intention of investing and ‘fixing’ things in the 100-day value creation plan.”
 
Some fixes, however, required a partial product portfolio realignment. Philips, for example, sold its Aging and Caregiving to remote care company Connect America, while Cardinal Health handed off its troubled Cordis business to private equity firm Hellman & Friedman for roughly $1 billion. Likewise, Teleflex Inc. divested a significant portion of its Respiratory business to Medline Industries Inc. for $286 million in cash; the divested Teleflex respiratory product lines include Hudson RCI devices for oxygen and aerosol therapy, active humidification, non-invasive ventilation, and incentive spirometers, all of which generated $139 million in 2020 revenue.
 
BD and Zimmer Biomet, meanwhile, announced spinoff plans, with the former turning its diabetes care business into a standalone public company and the latter doing the same for its spine and dental divisions.
 
“The year in M&A has been incredibly frothy,” said Ben Dunn, managing director at Boston-based investment banking firm Covington Associates. “Deal activity and valuations are at highs compared to the recent past. There was a lot of pent-up demand on the buy side and sell side. You had buyers who needed to do deals or put money to work and strategics who had new things they wanted to address because of COVID, and one of the ways to do that was through acquisition. It was a perfect storm leading to robust M&A activity.”
 
Just the kind of storm the industry needed.
 
Let it rain.
 
Be sure to review the other portions of the 2021 Year in Review feature:

MDR/IVDR Rollout and Challenges
 
Ransomware Attacks Push Cybersecurity into the Spotlight
 
Supply Chain Struggles for Medtech Manufacturers