M&A activity was active in the first half of 2021, and medical technology M&A is expected to maintain strong momentum in the second half

In the first half of 2021, medical technology (Medtech) M&A activity heated up rapidly, with the number of deals already exceeding the total for all of 2020. Experts predict that M&A spending in the sector will maintain a similar trend in the second half of the year.

M&A deals began intensively at the start of the year. Companies, shaking off last year's uncertainty and holding large cash reserves, quickly put them to work, announcing at least 10 deals in January alone.

Although the pace of deal announcements has slowed somewhat from the beginning of the year, multi-billion-dollar acquisitions and tuck-in acquisitions continue to accumulate. According to data provided by EY to MedTech Dive, the medical technology industry recorded 33 deals in the first half of 2021, compared to 25 for all of 2020.

John Babitt, EY's Americas Medtech Leader, said companies generally expect to deploy the reserves accumulated in 2020.

"We definitely got off to a very fast start," Babitt said. "Activity has slowed a bit in terms of deal pace, but I'm fairly confident that in the second half of the year, we'll see fairly active M&A."

Jeff Haxer, a partner at Bain & Company, noted that due to the pandemic's impact, such as elective procedure volumes dropping significantly as hospitals were filled with COVID-19 patients, companies had previously been cautious about spending. As elective procedures gradually recover and the industry normalizes, Haxer added, companies' willingness to acquire competitors or be acquired has also rebounded, a trend that could continue.

"Based on our conversations, I don't get any sense at all that they intend to slow down in the second quarter or the second half," Haxer said.

Scott Tuhy, chief medical device analyst at Moody's Investor Service, said the diversity of deals in the first six months of the year was a notable trend, with M&A activity spanning multiple sectors. "We've seen deals in diagnostics, cardiology, dental, and more," Tuhy said. "Sometimes in the past, deals were concentrated in a single area, but what really stands out is that we've seen such a wide range of deal types."

Announced deals have included strategic tuck-in acquisitions, spin-offs, and a flurry of acquisitions in the cardiac wearable device space, including Steris' $4.6 billion acquisition of Cantel Medical.

Hologic and Boston Scientific were among the most active buyers, announcing four and three deals, respectively. Hologic focused primarily on tuck-in acquisitions, with three of them below $250 million, but the company did pay $795 million for Mobidiag.

Meanwhile, Boston Scientific had multiple deals at the billion-dollar level. The medtech company acquired Lumenis' surgical business for $1.07 billion and Preventice Solutions for $925 million. The Preventice deal was part of a wave of acquisitions of cardiac wearable device makers that dates back to Philips' $2.8 billion acquisition of BioTelemetry in December 2020.

"Seeing all the cardiac monitoring deals was a bit unexpected... This is clearly a land grab, with everyone looking for specific assets," said EY's Babitt. "We saw similar situations a year ago in mitral valve and digital surgery... It's really a phenomenon."

In addition to Boston Scientific and Philips, Hillrom also entered the cardiac wearable device space with its $375 million acquisition of Bardy Diagnostics. However, the company is now trying to exit the deal due to recent Medicare rate cuts for long-term cardiac monitoring.

Babitt said that despite some short-term challenges from reimbursement issues for cardiac wearables, in the long run, "remote monitoring will be an area of the future."

Top medtech deals announced in the first half of 2021

• Jan. 12: Steris acquires Cantel Medical, $4.6 billion
• Mar. 15: Roche acquires GenMark Diagnostics, $1.8 billion
• Mar. 3: Boston Scientific acquires Lumenis surgical business from Baring Private Equity Asia, $1.07 billion
• Mar. 12: Cardinal Health sells Cordis business to private equity firm Hellman and Friedman, $1 billion
• Jan. 21: Boston Scientific acquires Preventice Solutions, $925 million
• Apr. 8: Hologic acquires Mobidiag, $795 million
• Apr. 1: Quest Diagnostics sells its stake in Q2 Solutions to IQVIA, $760 million
• Jan. 19: Philips acquires Capsule Technologies, $635 million
• Jan. 7: PerkinElmer acquires Oxford Immunotec, $591 million
• Mar. 2: Agilent acquires Resolution Bioscience, $550 million
• May 10: Allergan Aesthetics acquires Soliton, $550 million

Will there be large-scale M&A in diagnostics?

One trend experts highlighted in the first half was spending in the diagnostics sector, fueled by revenue from COVID-19 testing businesses. For example, Hologic announced four deals in the first half, totaling nearly $1.3 billion. Quest Diagnostics and LabCorp both had deals in the first half, while Thermo Fisher, whose revenue grew 26% in 2020 driven by its COVID-19 business, acquired Mesa Biotech for $450 million. The company also spent $17.4 billion to acquire clinical research company PPD and approximately $880 million to acquire Novasep's viral vector manufacturing business.

"There are certainly some companies that have benefited from COVID-19 diagnostic testing over the past year and a half, generating significant cash flow, much of which remains on their balance sheets," Tuhy said.

According to a MedTech Dive analysis of financial filings, LabCorp, Quest, Thermo Fisher, and Abbott Laboratories—although the latter's business extends far beyond traditional diagnostics—held the most cash and cash equivalents at the end of the first quarter.

Medtech companies stockpiled billions in cash

• Abbott: $8.05 billion
• Thermo Fisher: $5.58 billion
• Becton Dickinson: $3.73 billion
• Medtronic: $3.59 billion
• Stryker: $2.24 billion
• Boston Scientific: $2.02 billion
• LabCorp: $1.89 billion
• Intuitive Surgical: $1.4 billion
• Philips: $1.28 billion
• Quest Diagnostics: $1.23 billion
• Edwards Lifesciences: $1.17 billion
• Quidel: $981.05 million
• Hologic: $816.4 million
• Qiagen: $787.79 million
• Zimmer Biomet: $724.3 million

Data source: Companies' most recent 10-Q or 6-K SEC filings.

With the diagnostics sector facing a sharp decline in COVID-19 testing revenue, M&A could be one way to offset those losses. "Since testing demand is fading, (diagnostics companies) are almost certainly looking around and thinking, 'What's next?'" Haxer said.

Babitt, Tuhy, and Haxer predict more M&A activity in the diagnostics sector in the second half of the year. Although most deals announced this year have been tuck-ins or around $1 billion in size, large-scale M&A could emerge in diagnostics. "We'll see if there's a big deal," Haxer said. "What really wouldn't surprise me are those diagnostics companies. Some of them are flush with cash, and I wouldn't be at all surprised to see a major move."