Dive Brief:

• The annual number of medtech acquisitions is on course to slump to its lowest level since 2017, Needham analysts said Friday.
• At the midpoint of the year, deal volumes are down but values are up. The analysts see the potential for increased activity, citing stabilizing interest rates and low valuations. Still, they identified antitrust concerns as a barrier that could persist until at least the presidential election.
• Needham analysts removed Nevro from their list of the top 25 potential acquisition targets due to its “modest growth rate.” Neuropace, Zimvie, Artivion and Masimo joined the list to replace Nevro and companies that are part of deals, such as Shockwave Medical and Silk Road Medical.

Dive Insight:

Around the midpoint of 2024, the Needham analysts’ database of medtech mergers and acquisitions included 131 deals worth $32.4 billion. Extrapolating across the rest of the year, the analysts estimated there could be 269 deals worth $66.4 billion in 2024. If the forecast is correct, there will be fewer deals in 2024 than in any year since 2017.

Yet, the analysts see potential for increased M&A. Interest rates “seem to have peaked” and may fall, the analysts wrote, and medtech markets have stabilized. The valuations of small- and mid-cap companies are low by historical standards. 

While those factors support increased dealmaking, the analysts said the U.S. Federal Trade Commission “has been aggressive in challenging deals under the Biden administration.” They added that M&A could increase if former President Donald Trump wins the presidential election in November and outlined what they think larger medtech companies are looking for in acquisition targets.

“We think the primary things are high growth and large market opportunities,” the analysts said. “Secondarily, we think that they also prefer companies with high gross margins, differentiated products and barriers to entry (patents, regulatory approvals, etc).”

Those factors inform the analysts’ list of the top 25 potential acquisition targets. Three of the companies on the previous version of the list have accepted takeover offers. Shockwave Medical has become part of Johnson & Johnson in a $13.1 billion deal. The deal strengthened J&J’s involvement in the treatment of coronary and peripheral artery disease. 

Boston Scientific, which reportedly considered buying Shockwave, was responsible for the other two deals. The company agreed to buy the urinary and bowel dysfunction company Axonics for $3.7 billion in January, although a FTC investigation prevented it from closing the deal in the first half of 2024. Boston Scientific is also working to close its $1.26 billion takeover of Silk Road Medical.

The acquisitions helped deal values rebound in the first half of 2024. Needham analysts calculated that medtech companies spent more in the first six months of the year than in all of 2023, although the deal value for the full year looks set to fall short of the high set in 2021.

Neuropace, Zimvie, Artivion and Masimo replaced the three acquired companies, plus the axed Nevro, on Needham’s list of potential takeover targets.

Zimvie’s elevation to the top 25 targets came days after Bloomberg reported the dental device manufacturer is considering a sale. Artivion sells aortic and mitral valve replacements, Masimo provides pulse oximetry devices and Neuropace markets an epilepsy treatment. The four companies joined medtech businesses including Tandem Diabetes Care on the list.