• Medtronic’s $43.9 billion merger with Covidien motivated by future market gains rather than tax inversion
• Megadeal ‘gives the new company a diversified medical devices portfolio, which will meet the growing hospital demand for holistic treatment options,’ says analyst

Medtronic’s $42.9 billion merger with Covidien, which created last week the world’s largest medical devices company, was primarily motivated by future market gains rather than tax inversion, according to analysts with research and consulting firm GlobalData.

Niharika Midha, MSc, and Linda Tian, MSc, GlobalData’s Analysts covering Medical Devices, say that the Medtronic-Covidien deal is “game-changing” and underscores the anticipated merger and acquisition wave within the medical devices industry, following the Zimmer-Biomet deal.

Midha says: “Although tax inversion has been reported as the major driver behind the Medtronic deal, which sees the company’s headquarters relocate from the US to Ireland, the strategic benefits of the deal will outweigh any tax savings.

“Medtronic can now readily leverage Covidien’s established market position in the surgical and wound care specialties, while enhancing its deliverability in the potentially lucrative areas of patient monitoring and hospital services. The deal also allows Medtronic to explore new and growing sectors within medical devices, as Covidien recently acquired Given Imaging’s novel capsule endoscopy business for $860 million.”

A further advantage of the deal will arise from Medtronic’s increased presence in the major emerging markets of Brazil, Russia, India and China, where Covidien experienced 25% growth in 2013 alone, according to GlobalData. 

Most telling of all, for Midha and Tian, is the minimal overlap between the two companies’ product lines, which will enable Medtronic to capitalize on the growing trend of hospitals seeking suppliers that offer wider ranges of products at lower prices.

Tian concludes: “The healthcare sector is under stress due to multiple burdens, with increased margin pressure having the most significant impact on hospitals’ sustainable growth. The Medtronic-Covidien merger gives the new company a diversified medical devices portfolio, which will meet the growing hospital demand for holistic treatment options.”