Dive Brief:

• The value of medical device mergers and acquisitions fell 85% in the first half of this year, compared to a bumper 2021, as companies focused on integration and value capture activities, a PwC report found.
• PwC went into 2022 expecting another “exceptional” year for healthcare M&A activity, although it predicted companies would make small acquisitions in the first half of the year before moving on to larger deals in the second half. The advisory firm said it still expects activity to pick up in the second half of 2022.
• Abbott Laboratories, Johnson & Johnson and Medtronic are seeking M&A targets, but PwC highlights a range of barriers that could stop acquisitions, including supply chain issues, scrutiny from the Federal Trade Commission and geopolitical concerns.

Dive Insight:

By PwC’s count, medical device companies spent $76.4 billion across 93 deals last year. Acquisitions such as Baxter’s $10.5 billion takeover of Hillrom were among the biggest deals struck across the life sciences sector. 

Activity has fallen this year, however. PwC said none of the takeovers in the top 10 life science deals in the first half of 2022 met its medical device definition. Stryker’s $2.97 billion takeover of software provider Vocera Communications is missing from the list, and Becton Dickinson’s $1.53 billion acquisition of pharmacy automation company Parata Systems is categorized as “other,” not “medical device.”

The analysts attributed the slowdown to a shift in focus from acquisition to integration and value capture activities. Yet, while the integration of big takeovers from 2021 may keep companies such as Baxter on the sidelines, other businesses lack those constraints and have voiced an interest in M&A. 

Notably, J&J CEO Joaquin Duato has adopted a more “aggressive” M&A strategy for medical devices since taking over the company. The comments of Duato and leaders at Abbott and Medtronic show there is still interest in acquisitions of tuck-in size and up, supporting PwC’s view that M&A will remain a priority, but there are also near-term barriers to sealing deals.  

“Valuations of medical device companies have come to reflect investor expectations for significant growth in the future, but recent industry consolidation, ongoing supply chain issues and geopolitical concerns may present near-term challenges to M&A activity,” the analysts wrote. Still, they added, despite the headwinds, “we expect M&A will remain a priority across the subsector.”

The analysts framed the medtech deals that have happened in 2022 as a “continuation and acceleration of several sector trends within the industry as established companies continue to seek to enter higher growth adjacencies and bolster their digital capabilities.”

The list of big medtech takeovers for 2022 also includes ResMed’s approximately $1 billion acquisition of Medifox. Medtronic closed its $1.1 billion buyout of Intersect ENT this year but the deal dates back to 2021.