MedTechs have money to spend

While M&A slowed last year due to the coronavirus pandemic, the MedTech industry seems to have get into a frenzy this year. 2021 started strongly, with more than USD10bn-worth of deals announced in January alone. It has already seen two takeovers worth upward of USD 1 billion, plus a clutch of USD 100 million-plus agreements. In fact, 2021 has had the strongest first quarter for device maker deal-making since 2016, and another billion-dollar buyout could be on the cards.

In the first week of the year, Hologic disclosed deals to buy Somatex for USD 64 million to add minimally invasive devices for breast tumor diagnosis, biopsy and treatment to its portfolio, and acquire Biotheranostics for USD 230 million to expand its molecular diagnostics capabilities. Hologic continued the spree with a USD 159 million deal to buy molecular diagnostic player Diagenode. The company’s investments make sense for a firm preparing for a post-pandemic world. Sales of COVID-19 tests have bolstered Hologic’s business, but the day demand for them starts to decline isn’t far off. By gaining stronger footing in both non-invasive and molecular diagnostics markets, the company is aiming to stand strong when the revenue pipeline of COVID-19 tests runs dry.

PerkinElmer agreed to pay USD 591 million for Oxford Immunotec and the chance to challenge Qiagen for the tuberculosis testing market.

Thermo Fisher Scientific Inc. completed its previously announced acquisition of Mesa Biotech, Inc., a privately held point-of-care molecular diagnostic company. Mesa Biotech has developed the Accula System, an affordable, easy-to-use, point-of-care PCR-based testing platform for infectious disease diagnosis. Beyond COVID-19 testing, Mesa Biotech’s existing platform includes tests for flu, respiratory syncytial virus (RSV), and Strep A. Mesa Biotech will become part of the Life Sciences Solution Segment and is expected to add revenue of approximately USD 200 million in 2021.

Steris has lined up the biggest takeover of the year so far, to buy Cantel Medical in a deal that values the provider of infection prevention products at USD 4.6 billion. The deal is expected to close by June 30, pending customary closing conditions, regulatory approvals and a nod by Cantel shareholders. Steris expects to fund the cash portion of the transaction consideration and repay a significant portion of Cantel’s existing debt with roughly USD 2 billion of new debt. Steris said it has obtained fully committed bridge financing. News of the merger comes a month and a half after Steris closed on its USD 850 million purchase of Key Surgical.

Boston Scientific recently unveiled the second USD 1 billion-plus MedTech takeover of 2021. The company is set to pay USD 1.07 billion to acquire Lumenis’ global surgical business from its private equity owner. This deal will net it a portfolio of laser systems for urology and otolaryngology procedures, chiefly Lumenis’s Moses laser, used to break up kidney stones. Lumenis’s current owner, Baring Private Equity Asia, will keep Lumenis’s aesthetics and ophthalmology businesses.

Boston’s motivation for opening its chequebook is clear. The COVID-19 pandemic and its consequent lockdowns were catastrophic for the group, whose devices tend to be used in non-urgent procedures from which hospitals shied away so they could focus on coronavirus patients.

A recent Evaluate Vantage analysis found that, out of the top 10 largest MedTechs, Boston’s revenues sank the most in the fourth quarter of 2020. Thus the company’s enthusiasm for buying high-growth businesses. Lumenis’s surgical unit expanded at double-digit rates in the five years before COVID-19 hit, and net sales are projected to hit USD 200 million in 2021. Boston is likely to make more acquisitions throughout the year, though perhaps it might scale back to smaller tuck-ins.

In January, Boston Scientific had said it would buy Preventice Solutions for USD 925 million to add cardiac monitoring products to its portfolio.

Preventice and Boston Scientific disclosed their agreement days after Hillrom revealed a USD 375 million deal to buy Bardy Diagnostics for its ambulatory cardiac monitoring capabilities. The takeover would have moved Hillrom, which is known for its hospital beds, into a higher-growth category. However, the deal is now in jeopardy, with Hillrom citing a reimbursement rate cut by a Medicare contractor to argue the takeover cannot go through on current terms. Hillrom plans to renegotiate or walk away. In the meanwhile, BardyDx has advised Hillrom that it has filed a complaint against Hillrom in the Delaware Court of Chancery.

Philips’ plans to acquire Capsule Technologies for a cash consideration of USD 635 million. The Capsule takeover will give Philips a platform that connects medical devices and electronic health records. By integrating and analyzing data from the disparate sources, the Capsule platform is designed to accelerate the identification of at-risk patients.

Medtronic’s Martha said that the MedTech giant plans to continue to look for M&A opportunities in 2021 after the company last year accelerated its momentum for tuck-in acquisitions, announcing seven such deals with a combined total consideration of over USD 1.6 billion.

Baxter CEO Joe Almeida said the company continues to “think very seriously” and to “evaluate” M&A this year. “I’m not in a position to tell you affirmatively that 2021 is the year of M&A,” he remarked, though it is part of the medtech’s playbook.

Stryker acquired OrthoSensor, Inc., giving Stryker intraoperative sensors it sees as complementary to its Mako robotic system. OrthoSensor quantifies orthopaedics through intelligent devices and data services that allow surgeons and hospitals to deliver evidence-based treatments for all healthcare stakeholders.

Roche has announced its plans to buy US firm GenMark Diagnostics for USD 1.8 billion. GenMark, based in California, makes molecular tests which can establish the presence of several different pathogens from just one sample, it said. Roche said it is offering USD 24.05 a share for GenMark, a premium of some 43 percent to its last quoted share price on February 10. Acquiring GenMark Diagnostics will increase its portfolio of molecular diagnostic tests. The deal, subject to regulatory approval, should be concluded in the second quarter. The boards of directors of both GenMark and Roche unanimously approved the merger agreement.

Away from diagnostics, a clutch of companies have struck deals to expand into adjacent markets. In January, Haemonetics moved to bolster its hospital portfolio by paying USD 510 million to buy Cardiva Medical and its vascular closure systems. NuVasive stepped up its play for the cervical disc field by acquiring Simplify Medical for USD 150 million and Axonics Modulation Technologies landed a new incontinence device for its sales team to push by paying USD 200 million for Contura.

A second, smaller deal also has growth as its focus. Bio-Techne, which makes instruments and reagents for clinical diagnostics, bought Asuragen for USD 215 million via a combination of cash and an existing line of credit. Asuragen specialises in genetic carrier screening for conditions such as Fragile X as well as oncology testing.

Protolabs announced it plans to acquire Amsterdam-based 3D Hubs, an online manufacturing platform that provides engineers with on-demand access to a global network of approximately 240 manufacturing partners. Protolabs has agreed to pay USD 280 million at closing, funded with USD 130 million in cash and USD 150 million in Protolabs common stock. It will pay an additional USD 50 million, contingent on performance-based targets over two years after the close, funded with 50 percent cash and 50 percent Protolabs common stock.

Contract manufacturer Schivo, Waterford, Ireland acquired Supreme Screw Products (SSP), a supplier of precision machining, laser processing and assembly services for the medical device market. The acquisition will strengthen Schivo’s development and manufacturing footprint, enhance its technical capabilities, and deepen customer partnerships, according to the acquiring company. SSP will complement Schivo’s capabilities for minimally invasive surgery and life sciences markets through the addition of micro-machining, laser processing and assembly technologies.

Corza Medical, a new venture backed by the financial firepower of private equity giant GTCR, is looking to build a surgical tool supplier that its executive chairman Greg Lucier says can compete with almost monopolistic leaders in the space. To mount the challenge, Corza acquired Surgical Specialties Corp., a supplier of surgical sutures and ophthalmic knives. Corza will use this beachhead in Westwood, Mass., to build a pipeline of acquired assets including TachoSil, a surgical patch product line Corza acquired from Takeda Pharmaceuticals last year.

On March 3, 2021 contract research organization NAMSA announced its acquisition of Minneapolis-based American Preclinical Services (APS). This purchase follows NAMSA’s acquisition of New York-based Syntactx, a clinical research services CRO, in January. The acquisition will provide NAMSA customers with a broader range of laboratory models and analysis tools, including innovative surgical instrumentation and several state-of-the-art catheterization labs, imaging capabilities and surgical suites, according to NAMSA. These services, delivered within APS’s 130,000 ft2 facility, will enable medtech developers to perform safety and performance evaluations for early-stage R&D efforts, as well as integrated preclinical-to-clinical work for complex medical device programs.

On March 12, Cardinal Health announced it has signed a definitive agreement to sell its Cordis business to private equity firm Hellman & Friedman for approximately USD 1 billion. Cordis, which makes medical devices for diagnostics and interventional procedures to treat patients with coronary and peripheral vascular diseases, is an approximately USD 750 million revenue business. Cardinal in 2015 bought the cardiovascular device manufacturer from Johnson & Johnson for USD 1.9 billion. Cordis manufacturing sites in Miami Lakes, Florida, Santa Clara, California, and Juarez, Mexico, will transition to H&F, whose partners in the deal include investment firm Ajax Health and startup Zeus Health, launched by KKR and Duke Rohlen in late 2020.

On March 8, 2021, Colfax announced its plans to separating its medical device and fabrication technology businesses into two independent public companies. The split will create a MedTech company with a portfolio of orthopaedic devices forecast to generate sales of around USD 1.4 billion this year. The company built the portfolio through its USD 3.15 billion takeover of DJO Global and subsequent deals for Stryker’s STAR total ankle replacement product, LiteCure and Trilliant Surgical. Splitting the businesses is intended to facilitate more M&A.

On March 16, 2021, Catheter and Medical Design announced that it has acquired VitalDyne Medical, taking ownership of VitalDyne’s laser cutting, welding, micromachining and finished device manufacturing capabilities to complement its existing complex catheter shaft design and manufacturing capabilities. The two companies previously collaborated on critical devices that cross the septum of the heart to repair heart valves, treat atrial fibrillation and prevent strokes.

Should the rumoured takeover of Livanova by private equity for a price just shy of USD 4 billion come off, 2021 could end up with the strongest opening period for a decade. Livanova has also been hit by the pandemic, with demand for its neuromodulators and heart valves taking a temporary knock. Its 2020 sales were down 14 percent compared with 2019 – an even greater drop than that experienced by Boston Scientific. Livanova ended up selling its valve franchise in December. The Permira deal is far from a sure thing. Livanova is often talked of as a takeover target – the last time rumours swirled, a year or so ago, the putative buyer was Medtronic. Analysts believe that Permira’s offer is too parsimonious to garner significant shareholder support, despite Livanova’s investor base being frustrated by its depressed near-term earnings, partly owing to its high R&D spend.

The analysts write that a strategic buyer makes more sense, since such a group could realise greater synergies than a PE shop, and believe a price of around USD 100 per share could get a deal done. Still, they add that there are few obvious signs of strategic interest.

If Livanova is claimed by Permira or anyone else, the first quarter of 2021 will set the year up to be a record-breaker!