Many say the lifeblood of Medtech Is M&A, so, how goes M&A in 2022?
To support that statement, one of the most well attended sessions at the 3rd annual MedExecWomen meeting was Making Acquisition Strategy Succeed: Perspectives From Each Side Of The Deal, a panel that offered unique perspectives from the acquirer and acquiree. From that panel we learned that a 100% earnout was rare (22%) but there were wise tips and techniques from the panelists to increase that low percentage.
Here are two other sources of valuable information: the SRS Acquiom (SA) 2021 Life Sciences M&A Study, and RBC analyst findings.
SRS Acquiom 2021 Life Sciences M&A Study
In this analysis, SA reports that the market appears to be resolving how to work with pandemic-related matters.
SRS Acquiom also reports that some data trends, such as deal terms, continue to feature earnouts at a steady margin in private M&A transactions notwithstanding major changes in public financial markets for all sectors. Average earnout potential and quantity of milestone events per deal increased considerably in Bio/Pharma starting in 2015 and have remained at elevated levels, while up-front values displayed no noticeable difference over the same period in the Devices or Dx/Research sector.
Negotiated development milestone values for Bio/Pharma move higher at every stage for deals with up-front values over $100M, but not for deals in more recent years (in spite of greater public market valuations) or for deals with later-stage programs (phase 2 or later). Commercially Reasonable Efforts continues to be the most usual applicable diligence condition in Bio/Pharma deals, notwithstanding rising mentions of Buyer Discretion in recent years. SRS Acquiom reports a flood of greater than $20 B in combined earnout potential in their deal set since September 2019, almost wholly from Bio/Pharma.
Escrow Claims: Escrow claim activity is comparable in life sciences to other industry deals with claims somewhat less common (30% versus 34% of deals, respectively).
Earnout Achievement: The latest data from SRS Acquiom demonstrates that in all three sectors, 33–34% of earnout capacity from milestones calculated to be owed has been disbursed ($4.7B out of $14.2B). However, expected milestones are a key added element in Bio/Pharma ($39.5 B; 76% of total earnout potential) but not in Devices and Dx/Research sectors.
($2.7 B; 37% of earnout potential). SRS Acquiom states that in their experience, Devices and Dx/Research deals are likely to mature within approximately five years. Also in Devices and Dx/Research deals, achievement rates are higher for development and commercial milestones (for both, value remunerated is up 4%–5% of total earnout potential compared to our 2019 study. While earnout disputes continue to be common in 29% of deals, greater than 50% of those deals have been renegotiated. 24% of debated milestone value has been paid, most often from milestones that have been renegotiated.
RBC investor findings
On August 23, 2022 RBC hosted an expert medical devices meeting at the RBCCM West Coast Medical Device Bus Tour.
The key takeaways were:
The continuous development of technology and digitization have become permanent post-COVID.
While healthcare staffing pressures have been tenacious, they should decline in the future.
Capex budget declines are expected to be temporary in spite of the continuing reluctance of hospital executives to release funds because of macro economic concerns.
Key trends in the medtech industry are about patient continuum of care, procedural integration, and connected ecosystems.
The medtech M&A environment is expected to stay robust in the long term, and 'build to buy' brings multiple options, allowing medtech companies to invest in start-ups, foster them, and ultimately acquire them, as an alternate path to outright M&A.
Sources
CONTACT US
LOOKING FOR A PARTNER WITH KEY DUE DILIGENCE INSIGHTS FOR MEDICAL DEVICE M&A WITH CLINICIANS, HOSPITAL ADMINISTRATORS AND HOSPITAL CFOS?
OUR LAST THREE PROJECTS WERE:
M&A due diligence analysis: strategic fit for a new disruptive product
Go to market strategy for a medtech start up
Medtech price sensitivity analysis - hospital administrators and CFOs