[Image courtesy of Basheer Tome on Flickr, per Creative Commons 2.0 license]
Device Talks, which was held in Newport Beach, Calif., last week, featured a panel of M&A experts including advisors from Greenberg Traurig, Caldera Medical Group, Cerus and Locust Walk. The group discussed overall M&A in medtech trends, as well as technologies that are trending now, and how startups are navigating the space.
One of the most reassuring observations was that, in general, medtech M&A is stable. Kleanthis Xanthopoulus, managing general partner at Cerus DMCC, presented data from BMO Capital Markets.
“We have decades of data [showing] that M&A is not a trend, rather it is a steady part of the ecosystem,” Xanthopolous said, noting that such news is welcome to the medtech market.
“This is healthy and good,” he said. “Companies get acquired and then re-fertilize to create new ideas.”
Such steadfastness is not always visible, and Xanthopolous says he doesn’t mean to imply that the medtech industry is not subject to peaks and valleys.
“We saw spikes in IPOs during 2014 and 2015, likewise we saw spikes in follow-ons during 2015 and 2016,” he explained.
Other panelists noted that some trends are not always favorable to start-ups, which has prompted them to adjust and change how they carry out M&A. For example, Stewart Davis, senior vice president of Locust Walk, said that acquisitions are happening much later in the startup cycle.
“We are seeing deals happen later, sometimes after a startup is showing revenue.”
Although this is good for acquirers, Davis said it makes it more difficult and risky for start-ups.
“The acquirer can base the decision on real numbers rather than projections, which usually means more risk and lower reward for the acquired company,” he said.
In order to reduce that risk, startups are adopting techniques to make themselves more valuable, said Eric Geismer, EVP and general counsel for Caldera Medical Group.
“Small companies are using a roll-up strategy to create value and be more alluring for acquisition,” he said.
The group also noted that approaches to therapeutic areas also support the notion that value is part of the product in multiple ways. Ginger Pigott, shareholder for Greenberg Traurig and vice-chair of its pharmaceutical, medical device & healthcare litigation practice, observed that small and mid-sized companies are focusing on the healthcare ecosystem. Rick Tache, also a shareholder at Greenberg Traurig and co-chair of its global patent litigation group, echoed that idea, saying there’s a convergence of software and cloud computing embedded into medical technology. Such technology adds value to medical device products in how they will be used in a healthcare setting and is also a product differentiator strategy.
Convergence is a therapeutic trend as well, according to Xanthopoulus, noting the increasing number of drug-device combos. Davis said he’s excited to see more robotic-assisted surgical products in the future.
Overall, the panelists agreed that medtech is showing healthy M&A activity and that the companies being acquired can demonstrate clear value to the healthcare system and to potential buyers.
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