Feeding the Beast: Steady M&A Diet Fuels VAlue for Big Device Firms
Natural selection by the markets will ensure the largest device companies will win out over industrial newcomers in buying smaller players, maximizing value creation and growing larger and stronger.
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In 2006, the number of late-stage private equity deals in the medical device sector is up significantly from 2005. At the IN3 East medtech conference in October, a lively panel of venture capital investors from Galen Partners, 3i, Matignon Technologies and OrbiMed Advisors discussed why this is so, and the risks, benefits and models for late-stage investing.
Guess who was the fastest growing orthopedic implant company last year. Smith & Nephew. The boom that has characterized the orthopedics market for the past several years has been a rising tide that lifts all boats--all, that is, except Smith & Nephew. But in the last couple of years, Smith & Nephew has actually been growing faster than their larger competitors. And in an industry that will increasingly see winners and losers, Smith & Nephew believes it is positioned to be one of the winners.
The first article in a two-part series, The Boston Consulting Group (BCG) explores the financial rationale driving the steady trend of M&A activity in the medical technology sector-as well as the business implications that result. Here, the authors examine the phenomenon of external players-industrial companies, conglomerates and others-acquiring companies and entering the medtech sector. The series draws on the valuation techniques, used by BCG's ValueScience Center, which combine proprietary discounted cash flow and relative valuation multiple models.