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War chests, distressed assets drive MedTech M&A flurry early in 2021

The MedTech industry is averaging more than one $100 million-plus takeover a week so far in 2021, as the influx of COVID-19 test revenues and pressure on companies reliant on surgical procedures create opportunities for M&A.

Analysts tipped 2021 to be a big year for M&A due to the potent mix of unprecedented access to capital and assets distressed by the pandemic. So far, 2021 is yet to see a deal of the magnitude of agreements struck early in 2019 and 2020, when Johnson & Johnson offered a $5.75 billion package to buy Auris Health and Thermo Fisher Scientific made its doomed $11.5 billion bid to acquire Qiagen. However, 2021 has already seen two takeovers worth upward of $1 billion, plus a clutch of $100 million-plus agreements.

Steris has lined up the biggest takeover of the year so far, agreeing to buy Cantel Medical in a deal that values the provider of infection prevention products at $4.6 billion. Cantel spent most of 2020 recovering from a plunge in its stock price early in the pandemic, enabling Steris to succeed with a cash and stock offer that values Cantel at $84.66 per share. Cantel briefly traded above $90 a share 18 months ago, and higher still in 2018, but is recovering from a pandemic-afflicted year in which organic sales fell 6%.

Boston Scientific unveiled the second $1 billion-plus medtech takeover of 2021 earlier this week. The medtech giant is set to pay $1.07 billion to acquire Lumenis’ global surgical business from its private equity owner.

As with Steris’ acquisition of Cantel, the deal involves assets negatively affected by the pandemic. Lumenis’ portfolio of laser systems, accessories and fibers for urology and otolaryngology procedures generated sales of $197 million in 2019, according to Evercore ISI analysts, but revenues fell to $165 million last year. Boston Scientific expects sales to rebound to pre-pandemic levels this year, a prediction the analysts see as conservative.

Buying into fast-growth wearables

Boston Scientific is behind the third largest takeover agreement in 2021. In January, Boston Scientific said it would buy Preventice Solutions for $925 million to add cardiac monitoring products to its portfolio. The deal positions Boston Scientific to challenge iRhythm for the wearable cardiac monitor market and drive growth at a unit currently centered on long-term insertable cardiac monitoring products.

Preventice and Boston Scientific disclosed their agreement days after Hillrom revealed a $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.

Even if the Hillrom-Bardy deal falls through, the wearable and remote patient monitoring space is still one of the more active areas of M&A. This year, the sector has also seen Philips agree to buy Capsule Technologies for $635 million and Stryker acquire OrthoSensor for an undisclosed sum.

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. The OrthoSensor acquisition gives Stryker intraoperative sensors it sees as complementary to its Mako robotic system.

Spending the COVID-19 testing windfall

Companies exposed to COVID-19 testing fared best in the medtech industry in 2020. The surge in sales driven by the pandemic is now translating into dealmaking. Hologic has led the way, snapping up Somatex Medical Technologies, Biotheranostics and Diagenode in quick succession.

In the first week of the year, Hologic disclosed deals to buy Somatex for $64 million to add minimally invasive devices for breast tumor diagnosis, biopsy and treatment to its portfolio, and acquire Biotheranostics for $230 million to expand its molecular diagnostics capabilities. Hologic continued the spree this week with a $159 million deal to buy molecular diagnostic player Diagenode.

PerkinElmer and Thermo Fisher, other beneficiaries of the COVID-19 testing boom, have also been active at the deal table. Thermo Fisher moved to expand its point-of-care testing capabilities with the $450 million acquisition of Mesa Biotech, while PerkinElmer agreed to pay $591 million for Oxford Immunotec and the chance to challenge Qiagen for the tuberculosis testing market.

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 $510 million to buy Cardiva Medical and its vascular closure systems. Last month, NuVasive stepped up its play for the cervical disc field by acquiring Simplify Medical for $150 million and Axonics Modulation Technologies landed a new incontinence device for its sales team to push by paying $200 million for Contura.

Drivers of M&A so far in 2021, such as the COVID-19 testing windfall and the deferral of elective procedures, could soften in the coming months, potentially slowing the pace of M&A. However, the fallout of the crisis on healthcare spending could put longer-term pressure on some companies and there will remain medtechs with money to spend. Medtech Dive