Dive Brief:
- Private equity buyouts of medtech companies rebounded in the fourth quarter of 2022, pointing to trends that could spur deal-making this year, according to a report by Bain & Company.
- Four of last year’s top 10 medtech buyouts by value occurred in the fourth quarter, and analysts see the focus on manufacturers of best-in-class products with strong technological barriers to competition as the type of niche deals to expect in 2023.
- At the same time, medtech companies are continuing to spin off assets to realign their portfolios in high-growth areas, creating opportunities for private equity companies to buy businesses and exit existing investments.
Dive Insight:
After a surge in medtech deals in 2021, private equity acquisition activity fell back in line with historical averages over the first half of last year and then “declined sharply in the third quarter as macroeconomic challenges intensified,” the analysts wrote.
Transactions rebounded in the fourth quarter when MBK Partners acquired a South Korea-based maker of 3-D dental scanners for $2 billion, spurring optimism that M&A activity will accelerate in 2023.
Analyzing the deals struck in 2022, the team at Bain noted that some of the acquired businesses “have patented technology or offer first-of-its-kind FDA-approved technology,” creating high barriers for competitors and positioning the companies to weather a potential economic downturn, “especially if demand from the end markets these assets serve does not depend on discretionary spending.”
The trend led the analysts to identify “continued opportunities for private equity sponsors to invest behind smaller OEMs serving end markets with favorable tailwinds.” Medical aesthetics is one area that Bain sees “long-term tailwinds,” such as “shifting consumer attitudes about wellness and healthy aging.”
Other opportunities stem from the changes underway at large medtech companies, the analysts found. GE HealthCare has already split from its parent company and quickly struck a pair of buyouts. Medtronic’s planned divestitures have reportedly attracted private equity interest, Johnson & Johnson is set to boost its buyout capacity by separating off its consumer health unit, and 3M is spinning off its $8.6 billion healthcare division, potentially spurring more deal-making.
“In 2023, private equity sponsors will be likely to participate in the opportunities created by corporate activity as public medtech OEMs hone their product mix, reduce their manufacturing footprint, and optimize their outsourcing strategies. We expect sponsor-driven activity in medtech to rebound as sponsors find creative ways to play to their strengths,” the analysts wrote.
