Global mergers and acquisitions in 2023

2024 is expected to be a better year than 2023. M&A was down in MedTech and health services, while life sciences showed resilience.

The last couple of years saw fewer MedTech M&A than 2021 that saw an explosion of deal making. 2023 saw 22 MedTech acquisitions, as compared to 20 in 2022. With GLP-1 fears impacting stock prices and valuations along with higher interest rates, deal making became more expensive, companies preferring sub-USD 1 billion tuck-in acquisitions of products or services that fit well within the existing pipelines of the acquiring companies, as opposed to something novel that could have brought them into a new area.

2024 is expected to be better for MedTech M&A. The impact related to GLP-1 is behind us and interest rates are likely to decline. The average cash balance at large MedTech companies now stands at around USD 5 billion, up USD 1.5 billion since early 2019. Along with the cash balances on hand, improving profitability from lower inflation and better product pricing shall contribute to a productive M&A environment.

Private, VC-backed, mid-stage companies will likely continue to face a difficult financing environment, especially if they have been unable to garner support from new investors. This is because many insider investors will already be at their maximum funding levels.

Areas for potential M&A activity include mechanical circulatory support, trans-catheter mitral and tricuspid valve repair and replacement, pulsed field ablation, peripheral vascular solutions, interventional devices to treat venous thromboembolism and diabetes technology. Key areas of focus for MedTech are expected to be neurotech, imaging, pulsed field ablation, biometric technology, and wearables.

Funding
According to the HSBC Venture Healthcare Report 2023 Year-End Recap and 2024 Outlook, medical devices companies raised USD 7 billion in venture capital (VC) financings over 474 deals. This represents a 19-percent decrease from 2022. Medical devices companies that were raising their first investment rounds (either Series Seed or Series A) brought in USD 778 million over 108 deals, representing an 18-percent decrease from 2022. Interestingly, the first financing rounds decreased in each successive quarter throughout the year, with the highest number of financing deals in Q1, and the lowest number in Q4. All of that to say, it was difficult for companies seeking new funds to raise them in 2023.

In 2023, first-round financing deals tended to favor devices with the quicker 510(k) pathway to market, as opposed to those requiring premarket approval (PMA). This is notable because only a few years ago, investors/funders were most interested in seeing PMAs – truly novel medical devices – as opposed to something on the 510(k) path. However, it seems this has shifted, as devices that take the 510(k) pathway are currently favored.

More than 30 percent of the later-stage deals (Series B and beyond) in 2023 were down rounds, and done at valuations that were lower than their earlier financing. This resulted in a significant reset of valuations in a subset of the financings moving forward. Last year, the top indications for VC financing were for neurotech, particularly focused on neurostimulation technology and brain-computer interfaces, with 40 deals worth more than USD 1.3 billion collectively. Imaging, including equipment and software, was also very popular, with 65 deals amounting to more than USD 903 million. Additionally, surgical ventures had 46 deals worth more than USD 852 million.

Tools and diagnostics companies raised only USD 6.2 billion in VC financings across 423 deals in 2023. This represents a substantial 37-percent decrease from 2022. Tools and diagnostics companies raising their first investment rounds brought in USD 1.1 billion over 126 deals, a 31-percent drop from 2022.

Research and development (R&D) tools, including computational biology tools, was the leading subsector, raising USD 3.3 billion over 187 deals. R&D was followed by diagnostic analytics, with 99 deals worth USD 1.4 billion. Finally, diagnostic tests raised USD 1.4 billion over 119 deals.

MedTech M&As in 2023
Some companies merged, while others were acquired in an attempt to further accelerate innovation and advance productivity for the customers in their work to deliver new medicines and therapeutics to benefit patients. Portfolios were simplified in some cases to keep the focus on higher-growth markets, and talent and technology combined.

Stryker acquired ERF SAS, a France-based joint replacement company. It expects the acquisition will complement its current presence in France and across Europe, as well as its joint replacement portfolio. Last year, Stryker reported USD 2 billion in sales from knee replacements and USD 1.41 billion from hip replacements.

Illumina divested Grail after the companies battled both US and European antitrust enforcers for more than two years and faced fierce opposition from activist investor Carl Icahn. The terms would be finalized by the second quarter of 2024. Grail will continue to be held separate with committed funding from Illumina for the company’s business through the divestment process. Grail, valued at USD 7.1 billion under Illumina’s deal, is seeking to market a blood test that can diagnose many kinds of cancer, known as a liquid biopsy.

Danaher Corporation has completed its acquisition of Abcam plc. As a result, Abcam has become an indirect wholly owned subsidiary of Danaher. The acquisition of Abcam was for USD 24.00 per share in cash.

Less than two years after Zimmer Biomet spun out its dental and spine segments into Zimvie, the business split again. HIG Capital acquired Zimvie’s spine, motion preservation, and EBI bone healing technologies. Zimvie had USD 515.5 million in total debt as of September 30, 2023. For the nine months ended September 30, Zimvie’s dental sales were roughly flat year-over-year at USD 344.1 million, and its spine sales declined by 8.5 percent to USD 308.7 million.

Integra LifeSciences has entered into an agreement to acquire Acclarent from Johnson & Johnson MedTech’s subsidiary Ethicon for USD 275 million in an all-cash deal. The consideration is subject to standard purchase price adjustments, with an additional USD 5 million payable upon achieving specific regulatory milestones. Based in California, Acclarent is engaged in the development of ear, nose, and throat (ENT) procedures. Its portfolio includes balloon technologies for sinus dilation, eustachian tube dilation, and surgical navigation systems.

Haemonetics Corporation has completed its previously announced acquisition of OpSens Inc., a medical devices cardiology-focused company, delivering innovative solutions based on its proprietary optical technology. It acquired all outstanding shares of OpSens for CAD 2.90 per share in the all-cash transaction, representing a fully diluted equity value of approximately USD 255 million at the current exchange rate.

Nevro has acquired medical technology company Vyrsa Technologies in a deal valued at around USD 75 million. Nevro made a USD 40-million payment and committed up to an additional USD 35 million, either in cash or stock, based on reaching specific milestones in development and sales.

Johnson & Johnson has acquired Laminar, a California-based company that is developing a new approach to eliminate the left atrial appendage (LAA). J&J paid USD 400 million upfront with the potential for additional payments based on reaching clinical and regulatory milestones starting in 2024.

Medtronic plc. launched its Penditure™ Left Atrial Appendage (LAA) Exclusion System in the United States. The Penditure LAA Exclusion System is an innovative, implantable clip that comes pre-loaded on a single-use delivery system for use in left atrial appendage management (LAAM) during concomitant cardiac surgery procedures. Medtronic completed the acquisition of the Penditure device technology from Syntheon LLC in August 2023.

Inari Medical, Inc. acquired LimFlow S.A., a privately-held pioneer in limb salvage for patients with chronic limb-threatening ischemia (CLTI) for a total upfront consideration of USD 250 million paid in cash. Contingent consideration of up to USD 165 million in additional cash payments is subject to the achievement of certain commercial and reimbursement milestones and will be paid out between 2025 and 2027.

Cooper Companies closed the acquisition of select Cook Medical assets focused primarily on the obstetrics, Doppler monitoring, and gynecology surgery markets. The purchase price was USD 300 million with USD 200 million paid at closing and the remaining USD 100 million to be paid in two USD 50 million annual instalments. The acquired assets generated approximately USD 56 million in trailing twelve-month revenue as of September 30, 2023.

Thermo Fisher Scientific Inc. acquired Olink Holding AB for USD 3.1 billion, which includes net cash of approximately USD 143 million. This represents a premium of approximately 74 percent to the closing price of Olink’s American Depositary Shares.

Getinge acquired 100 percent of the shares in US-based Healthmark Industries Co. Inc., for USD 320 million. This enhances Getinge’s presence within sterile reprocessing in the US, and facilitates a global expansion for Healthmark. Getinge expects USD 30 million in gradual net synergies (revenues and costs) for the coming five years.

Enovis™ Corporation acquired LimaCorporate S.p.A. (Lima), at an enterprise value of € 800 million, consisting of a € 700-million cash payment at closing and € 100 million in shares of Enovis common stock.

Boston Scientific Corporation acquired Relievant Medsystems Inc., a company that offers the only US Food and Drug Administration-cleared Intracept® Intraosseous Nerve Ablation System. The acquisition includes an upfront cash payment of USD 850 million and undisclosed additional contingent payments based on sales performance over the next three years.

Abbott completed the acquisition of Bigfoot Biomedical, a leader in developing smart insulin management systems for people with diabetes. Financial terms were not disclosed.

Thermo Fisher Scientific Inc. acquired CorEvitas, LLC (CorEvitas), a leading provider of regulatory-grade, real-world evidence for approved medical treatments and therapies, from Audax Private Equity (Audax), for USD 912.5 million in cash. Thermo Fisher had announced the agreement to acquire CorEvitas on July 6, 2023.

STERIS plc. acquired the surgical instrumentation, laparoscopic instrumentation and sterilization container assets from BD (Becton, Dickinson and Company). The sale includes BD’s V. Mueller, Snowden-Pencer, and Genesis brands as well as three manufacturing facilities in St. Louis, Cleveland, and Tuttlingen, Germany. The company had global sales of USD 4.96 billion and a net loss of USD 27.9 million in its most recent fiscal year.

Baxter International Inc. divested its BioPharma Solutions business to Advent International, one of the largest and most experienced global private equity investors, and Warburg Pincus. Baxter received USD 4.25 billion in cash, subject to certain closing adjustments, with net after-tax proceeds currently estimated to be approximately USD 3.4 billion.

Quest Diagnostics has completed its previously announced acquisition of Haystack Oncology. In addition to paying USD 300 million in cash for Haystack, Quest agreed to USD 150 million in milestone payments, based on the cancer testing company achieving future performance goals.

Olympus Corporation have agreed with the former shareholders of Taewoong Medical Co., Ltd., a Korean medical device manufacturer, to rescind the definitive agreement to acquire shares of Taewoong Medical Co., Ltd. on March 7. The original closing disclosure to acquire share of Taewoong Medical was announced on January 24, 2024. The company called off its plan to acquire Taewoong Medical , as was proposed in February 2023. To effect the rescission, the former shareholders of Taewoong Medical have refunded the amount paid by Olympus, and Olympus has returned all shares of Taewoong Medical.

GE HealthCare acquired Caption Health, Inc. a privately owned artificial intelligence (AI) healthcare leader that creates clinical applications to aid in early disease detection, using AI to assist in conducting ultrasound scans for USD 127 million. GE HealthCare plans to pair its ultrasound machines with Caption’s applications for early disease detection. GE HealthCare received a USD 44 million grant from the Bill & Melinda Gates Foundation to develop AI-assisted ultrasound tech.

Globus Medical acquired NuVasive in an all-stock deal valued at USD 3.1 billion. Globus makes products for spinal surgery, imaging, joint reconstruction and trauma, and NuVasive specializes in products for spine surgery. The companies expect to benefit from a larger combined sales presence and each other’s operational strengths, such as Globus’ in-house manufacturing capacity and NuVasive’s global distribution networks. The combined firm may reduce costs by as much as USD 170 million over three years.

Life sciences was an exception. M&A spend rose to USD 191 billion in 2023, up 34 percent from USD 142 billion in 2022. Though deal volume fell, with the total M&A spend representing only 118 completed deals, compared with 126 in 2022, the average deal size increased significantly in 2023.

According to the 12th edition of the annual EY M&A Firepower report, the life sciences industry’s return to M&A is being driven by topline pressures, key products losing their patent protection in the next five years and the need to do the right deals now to deliver new revenue growth and value into the future. The industry also holds near-record levels of Firepower – defined as a company’s capacity to do M&A based on the strength of its balance sheet.

The EY research found that one of the fundamental reasons behind the 2023 rebound is the increased involvement in M&A from the life sciences sector’s biggest players – the pharma multinationals. These companies dominated industry deal making, with more than two-thirds (69 percent) of M&A investment coming from big pharma, compared with just 38 percent in 2022. Eleven large pharma companies all signed at least one deal of USD 1 billion or more in value.

Merck broke the USD 10 billion barrier with its acquisition of immunology specialist Prometheus in April, while the largest deal by a significant margin was Pfizer’s acquisition of Seagen for USD 43 billion in March.

These major investments meant that despite the dip in deal volume, the average biopharma acquisition size increased by 77 percent in 2023 (USD 1.23 billion in 2022 versus USD 2.18 billion to December 10, 2023). Big pharma is set to keep signing these bigger deals in 2024, signaling a major return to M&A.

Will the trend continue into 2024?
According to the report, there are three key reasons to expect the rising trend in M&A spending to continue and accelerate in 2024 and beyond – the biopharma industry still holds near-record levels of M&A Firepower; the industry faces major revenue challenges in the next five years and needs to secure inorganic growth; and economic conditions mean there is a buyer’s market favoring acquiring companies.

Despite its increased M&A investment, the industry still commands more than USD 1.37 trillion in deal-making capacity – higher than at any point in the history of the Firepower report apart from 2022.

Securing value through M&A. However, while there is money to invest in acquisitions, the challenge for companies across the life sciences sector is ensuring they do the right deals to secure value in the future.

The uncertainties facing biopharma dealmakers go beyond the general volatility in the global operating environment, and include the regulatory risks posed by new legislation, such as the US Inflation Reduction Act (IRA). This initiative will potentially constrain companies’ ability to set drug prices in the future, making it more difficult to accurately evaluate portfolio and pipeline assets of potential targets.

To realize value from their acquisitions, life sciences companies need to focus on the north star of delivering better outcomes for patients – including an improved, more personalized health experience. They must also work to ensure they have the right processes, discipline, and execution to deliver value creation from deal making.

M&A targets oncology and rare diseases. The huge growth potential of the oncology market is reflected in companies’ M&A spending over the past five years, with oncology dominating industry acquisitions in both value and volume terms – in 2023, M&A investment in oncology assets reached USD 65.2 billion. The intense competition for these assets has also resulted in companies paying higher multiples than for targets in other therapeutic areas. With multiples for oncology acquisitions over the past decade averaging 11.9 times total target company revenues, acquirers must work to ensure they extract value from their deals in this space.

Pharmaceuticals and life sciences (PLS) and healthcare services (HCS) M&A remained resilient in 2023, with innovative companies that can drive value attracting substantial investor interest. We expect deal making to accelerate off this baseline in 2024, as has already been observed with a pickup in M&A activity toward the end of 2023 and in the first few weeks of 2024. Although headwinds, such as elevated interest rates and regulatory scrutiny remain, investors and lenders are becoming more comfortable navigating this environment. In the more attractive parts of health industries, dealmakers, while remaining selective, appear eager to pursue high-quality assets which may in turn unleash some pent-up M&A demand.

Although there is cautious optimism that the IPO market will gradually reopen in 2024, likely skewing toward companies with strong clinical data, continued market uncertainty and upcoming elections in several countries may reduce the available window for an exit and force some companies to wait until 2025. As such, M&A and divestitures will likely remain the prevailing exit strategy and capital-raising mechanism for biopharma in 2024. With higher interest rates potentially persisting, corporations are reviewing their portfolios for divestiture candidates that cannot clear their required hurdle rates to be value-add for shareholders. And while many megadeals are on pause, we expect to see more collaborations and joint ventures, including partnerships with non-profits, to get important deals done.