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The Art of the Deal: Device M&A in Difficult Times

Executive Summary

Advanced Medical Optics, Ablation Frontiers, Acclarent, CoreValve, Evalve, Visiogen.-no tip of the iceberg last year; they were just about the whole berg in medical device M&A. Starting with AMO last January and ending with Acclarent in December it would be easy to look at the series of impressive device acquisitions that took place last year and be lulled into the belief that 2009 was a banner year for medical device M&A. In fact, just the opposite was true: total deal values and numbers were at their lowest peak in more than half a decade. What does it take to get a company sold these days? To look more closely at the topic, we asked some folks who've recently been on either side of a deal to talk, not so much about the current state of deal-making, but about how successful deals come about in today's environment.

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Medical Device and In Vitro Diagnostics/Research Deal Statistics Quarterly, Q4 2009

Highlights from the Q4 2009 review of medical device and in vitro diagnostics/research dealmaking: Medical device financings - again led by both early- and late-stage VC money, which made up 65% of the quarter's $745mm total - experienced a decline from the previous three-month period, which brought in over $1bn. The year overall fetched just $3.1bn, slightly less than 2008's $3.3bn aggregate. The biggest M&A was Ethicon Inc.'s $785mm takeover of Acclarent Inc. in December. Although Q4 M&A was $1bn higher than Q3, 2009 on the whole was the most dismal year for medtech acquisitions in over five years. On the in vitro diagnostics/research front, the $304mm in financings disappointed as it showed a significant dip from the $821mm done during Q3. Although Vermillion Inc.'s $43mm PIPE made up 19% of the quarter's pie, early- and late-stage VC financings again dominated, together accounting for 65% of Q4's aggregate dollar volume. Becton Dickinson & Co.'s $275mm October buy of molecular diagnostics firm HandyLab Inc. capped off a less-than-outstanding quarter of M&A activity with only five transactions totaling $468mm. For the entire year, in fact, this industry segment only managed to bring in $5.1bn through 21 M&A deals, a significant decrease over 2008's $9.6bn full-year amount.

Medical Device and In Vitro Diagnostics/Research Deal Statistics Quarterly, Q4 2009

Highlights from the Q4 2009 review of medical device and in vitro diagnostics/research dealmaking: Medical device financings - again led by both early- and late-stage VC money, which made up 65% of the quarter's $745mm total - experienced a decline from the previous three-month period, which brought in over $1bn. The year overall fetched just $3.1bn, slightly less than 2008's $3.3bn aggregate. The biggest M&A was Ethicon Inc.'s $785mm takeover of Acclarent Inc. in December. Although Q4 M&A was $1bn higher than Q3, 2009 on the whole was the most dismal year for medtech acquisitions in over five years. On the in vitro diagnostics/research front, the $304mm in financings disappointed as it showed a significant dip from the $821mm done during Q3. Although Vermillion Inc.'s $43mm PIPE made up 19% of the quarter's pie, early- and late-stage VC financings again dominated, together accounting for 65% of Q4's aggregate dollar volume. Becton Dickinson & Co.'s $275mm October buy of molecular diagnostics firm HandyLab Inc. capped off a less-than-outstanding quarter of M&A activity with only five transactions totaling $468mm. For the entire year, in fact, this industry segment only managed to bring in $5.1bn through 21 M&A deals, a significant decrease over 2008's $9.6bn full-year amount.

Top Device Stories of 2009: A Year of Economic Revival and Regulatory Risk

2009 was the most difficult year the device industry faced in a long time, particularly given the boom years that preceded it. Public and private investors grew nervous and sat on the sidelines, as did most corporate acquirers. As a result, most start-ups found it difficult to raise money and VCs were frustrated by the poor returns being generated, especially compared with the previously frothy climate. The silver lining may be that there are signs that the economic environment may be improving and that corporate acquirers will continue to pay a premium for the right deal. Overhanging all of this, however, is the specter of health care reform and its impact on the device industry, whether through a device tax, comparative effectiveness or some unanticipated other result, meaning the industry is far from out of the woods.

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