The pace makers: M&A activity looking strong, says expert

According to Mark Bonifacio, Bonifacio Consulting Services, the rate of medtech M&A activity isn’t likely to slow down this year.

Predicting the future is a risk, fraught with difficulty, especially in the healthcare sector. A myriad of unforeseen factors can affect outcomes, ruining even the most conservative of forecasts.

Some prophecies have better odds than others. Consider, for example, the consolidation that has reshaped the medical device sector over the last few years. There are strong indicators that this industry-wide consolidation will continue this year as existing platforms, new private equity players, and sector-related strategies all vie for assets. The only uncertainty is the pace at which this activity will occur.

The mergers and acquisitions of medtech OEMs and contract manufacturers (CMs) last year progressed at a blistering pace, and it appears that rate could continue in 2017 barring any major political upheaval or unforeseen chaos. The contract manufacturing (CM) market, in particular, seems poised to continue this rapid pace of consolidation.

Medtech industry executive Bill Ellerkamp detailed much of the recent 2016 activity in the medical device outsourcing market in his article in the January/February issue of MPO. Since that time, KRG (PE backed) Vention Medical closed its deal for Lithotech Medical, an Israeli-based developer of complex nitinol wire-based technologies (Real time update: Vention was itself sold by KRG as two business units, one to PE Backed Medplast (DMS business) and the Advanced Technology piece of the business to publicly traded Nordson Corp). Ampersand Capital Partners made an undisclosed investment in Corpus Medical, a Silicon Valley-based contract development and manufacturing organisation focused on interventional medical devices, catheter-based delivery systems, and implants. Finally, Medtronic is reportedly shopping around the ($2.4B) medical supplies business it inherited with the blockbuster Covidien acquisition.

The overall backdrop for these deals continues to remain strong. Historically low interest rates, deal leverage multiples, cash on private equity and strategic balance sheets, continued OEM consolidation, outside US suppliers and foreign investors looking for US beachheads are all contributing to this high demand.

Unlike the auto, aerospace and consumer industries, the medtech CM industry is still a highly fragmented space (and relatively young, compared with these other manufacturing supply chains). Driving this consolidation is a need for some business sophistication for owner/operator, (‘mom and pop type operations’) and most importantly, there is extreme macroeconomic pressure to reduce healthcare costs across the globe (especially in the USA as our overall healthcare GDP spend approaches 18% of total GDP, almost 50% more than any other developed nation).

All of this indicates we will see much more movement between the med device players in 2017. Stay tuned for the next deal announcement, you shouldn’t have to wait long.