Expect More Israeli Device Firms to Be Acquisition Targets in 2014

Posted in Medical Device Business by Arundhati Parmar on January 30, 2014

Israeli medtech firms are deeply innovative, so expect to see more device firms around the world to tap into their novel technologies and products, writes Paul Teitelbaum, managing director at Mesirow Financial.

Recently, I have been observing an acceleration in the acquisition rate of early-to-mid stage Israeli medical device companies.

There were several in the past few months alone – Covidien acquired Given Imaging for $860 million (this is Covidien’s fourth Israeli company acquisition in a little over 18 months); Baxter acquired FlowSense for $9.5 million; and Teleflex acquired InnoLap Surgical for an undisclosed amount.

Paul Teitelbaum, Managing Director, Mesirow Financial

Israel has been a hotbed of medical technology for well over a decade. The quality of Israeli medtech management teams also seems to be improving. For example, a few restructurings occurred in 2012 and 2013, where US CEOs or more experienced Israeli CEOs were put in place at some companies, and the successful market-testing of a number of these firms appears to be increasing.

Israeli incubators such as the Trendlines Group – FlowSense and InnoLap came out of Trendlines - have been learning to take the approach of first identifying a need and then designing an ideal solution to best meet the need, as opposed to the other way around.

A number of portfolio companies of Israeli incubators and VCs are finally getting “ripe” enough to garner more serious attention from buyers. These buyers are trading favorably in our currently robust capital markets and are flush with cash, so I believe 2014 will be an even more active year for Israeli medtech M&A.

Many of the large medical device companies continue to keep their eyes peeled on Israeli technologies. I can envision a time when the annual number of acquisitions of Israeli medtech companies actually rivals that of US-based companies. Considering that the U.S. is roughly 40x the size of Israel in terms of population, that is pretty remarkable.

Israeli technology has also caught the attention of Japanese, Chinese and Korean companies among others. In September of 2013, Japan’s Yaskawa, a $3.9 billion market cap manufacturer of robotic and motion control systems, announced an investment in, and partnership with, Argo Medical, the Israeli maker of a patient mobility device.

In 2014 and beyond, one trend to watch for is the acquisition of Israeli device solutions that become “kitted” along with products already provided by the large US medical device companies. We just saw this with Medtronic’s $160 million acquisition of Tyrx, which makes a combination device used to prevent infections in patients getting an implantable cardiac device.

Although Tyrx is not an Israeli company, many of the Israeli medical device companies we are familiar with are really add-on solutions. Kitting with add-on devices can help improve and cut down the time of surgical and interventional procedures, provide differentiation value to help sustain pricing in the face of increasing competition and cost-cutting pressures, and help expedite the adoption of new procedures

The vast majority of Israeli medical device companies end up exiting by selling to a strategic as opposed to doing an IPO on a major US exchange (I would venture to guess even greater percentage-wise versus US-based med tech companies). As a result, while we will continue to see M&A activity in Israel, I still believe that we are a ways from the emergence of an Israel-based medical device behemoth traded on major exchanges, similar to Teva in the pharma industry.

[Photo Credit: user yorkfoto]

Paul Teitelbaum is managing director at Mesirow Financial, who focuses on healthcare investment banking and global markets.   

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