MedTech M&A Scaling New Heights in 2021 on Rising Investor Wealth

Certainly, 2020 was the year of unmatched economic crisis, with the financial market remaining extremely volatile while adjusting to the new-normal consumption-spending pattern. For 2021, economists had initially predicted a comparatively stable market condition under the shelter of vaccine roll-out. Nonetheless, with the emergence of new virus strains and the resurgence of the virus’ next wave, the pre-COVID normalcy still sounds farfetched.

Within MedTech, however, the situation has been balanced since the outbreak of the pandemic. Thanks to the pandemic-led need for no or limited physical contact, this phase has become a banner period for digital health and remote patient monitoring. Added to this, with surging demand for diagnostic testing products, along with other non-elective critical care equipments, the MedTech industry never failed to flourish through the new-normal shifts.

M&A Madness Continues

When other major industries were and are still in a survival mode during the toughest time of the global economy, MedTech has been seen taking no break from the sector’s core strategy of inorganic expansion through channels of high-synergy acquisitions. In fact, various reports suggest that though the pace of M&A slowed down during the initial months of the coronavirus crisis, it still remains the key catalyst in the U.S. MedTech space amid the pandemic.

Investor Wealth in 2020 as Major M&A Index Shoots Up

The growing investor wealth (in terms of all market caps of top MedTech stocks) since the beginning of the global health crisis is a key indicator of the M&A transactions that have been taking place through the pandemic months. Going by a Statista data, in 2020 Teladoc TDOC, Novocure, Align Technology, Abiomed and West Pharmaceutical were the first five MedTech majors with significant rise in investor wealth (market capitalization of these stocks shooting up 139%, 105%, 92%, 90% and 88%, respectively).

During this period, Teladoc’s gain in market cap was backed by the whopping $18.5-billion Livongo acquisition leading to the formation of a $37-billion remote-health company. Similarly, Abiomed is likely to have gained in terms of market cap during this time frame, banking on its acquisition of Breethe, a developer of an extracorporeal membrane oxygenation system. Although financial terms of the deal remained undisclosed, the synergy components were pretty high.

Last year, West Pharmaceuticals acquired 90% of shares of Israel-based Medimop Medical Projects, a developer of disposable medical devices for the mixing, transfer, reconstitution and administration of injectable drugs. Align Technology ALGN, meanwhile, benefited from its purchase of Germany-based dental software company Exocad. Align currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While smaller tuck-in acquisitions dominated the M&A space throughout 2020, Siemens Healthineers (signed a $16.4-billion acquisition deal with Varian), Stryker (completed the acquisition of Wright Medical; a $4.7-billion deal) and Illumina (inking a $7.1-billion deal to acquire GRAIL) are a few colossal M&A players of this period.

M&A Firepower Still Underused

As noted by a Mass Device article, going by a January 2021 M&A Firepower report by Ernst & Young, “biopharma deployed just 12% of its firepower in 2020, compared to 20% in 2019, while MedTech’s firepower for deals expanded by 41% in 2020 (an all-time best) but just 7% was used, compared to 10% in the previous year.”

This underused firepower definitely directs investors toward a huge possibility of a bigger M&A splash in the near future and accordingly, points to the fact that now is the perfect time to focus on MedTech as it is going to take center stage soon in terms of inorganic growth.

M&A Deals Abound in 2021

While the pandemic-induced market debacle in 2020 led to an overall slowdown in M&As compared to the pre-pandemic scenario, MedTech mergers and acquisitions have been scaling new highs from the beginning of 2021. The underutilized MedTech firepower of 2020 has resulted in significant capital reserve for 2021. This has already started to surface in the form of mega M&A deals in the current year.

The month of January alone registered $10 billion worth of MedTech M&A deals marking first-quarter 2021 as the strongest one since 2016 (Data by Evaluate Vantage). Dentsply Sirona XRAY,a Zacks Rank #2 stock, STERIS STE, Phillips, Boston Scientific and Hill Rom are a few of the prime line M&A players of this period. Going by the Evaluste Vantage report, if the rumored takeover of Livanova by Permira eventually matures, 2021 could end up with the strongest opening period for a decade. 

While the first quarter of 2021 put up this performance, the month of April has gained more momentum till date with the two successive mega-acquisition updates. The first one is the U.S. antitrust clearance of a $12-billion deal by ICON ICLR to acquire PRA Health PRAH. And the latest in the list is Thermo Fisher Scientific TMO announcing its plans to buy clinical research organization PPD for a whopping $17.4 billion.

Weak Links

While we ask investors to have a close look at companies with growing investor wealth, we, nevertheless, advise them to stay away from companies that offer limited growth opportunities for the upcoming period. Also, the U.S. Federal Trade Commission’s (FTC) challenges related to the mega consolidations might disrupt share-price movements. For example, the FTC recently filed an admission complaint, along with a federal court lawsuit, to block Illumina’s proposed acquisition of cancer diagnostic start up Grail. Following this, the next day shares of Illumina depreciated 6.7%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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