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How has M&A Investment Philosophy Changed Before and After Recession?

There has been a sea change in how strategic investors see mergers and acquistions pre and post the Great Recession.

September 25, 2013

8 Min Read
How has M&A Investment Philosophy Changed Before and After Recession?

This isn't breaking news.

In the medtech world, companies eager to raise capital are finding that investors - be they venture capitalists or large strategic investors - aren't particularly eager to part with their cash.

In fact, at a morning session at AdvaMed's annual conference in Washington, D.C., on Wednesday, Ryan Drant, a partner with blue-chip VC firm NEA (New Enterprise Associates) said that the philosophy behind mergers and acquisitions have undergone a transformation in the last few years.

"Five to seven years ago, it was white space investment, investment in big ideas," Drant told the audience. "Now acquisition activity is focused on how something fits within an acquirers platform. It's defensive. It's how to complement and protect their franchise."

Perhaps that isn't surprising given regulatory uncertainty, challenges posed by healthcare reform and pricing pressures on current products.

One exception to that, Drant pointed out, is Johnson & Johnson's purchase of Acclarent in 2009. Acclarent made minimally invasive devices for ear, nose and throat for $785 million and is now part of J&J's Ethicon division that makes sutures and other surgical products.

Drant's co-panelist, Medtronic's senior corporate development officer Gary Brothers, essentially agreed that when it comes to new technology, the Minnesota device company would more likely invest in companies within its existing product platforms. 

In fact a recent acquisition by Medtronic, hailed as bold and out-of-the-box, is ultimately defensive. The company acquired Cardiocom, a remote patient monitoring company for heart failure patients, for $200 million in the summer. While valuable to patients and addressing the need within the healthcare industry to monitor people's health at home rather than caring for them when an emergency occurs, the move is an add-on service to the company's implantable heart failure products.

However, Medtronic is not completely ruling out the chance to invest in big ideas. 

"The white space investment would occur if companies can help us in our globalization efforts and in providing economic value to payers, providers and all our constituents," Brothers said. 

[Photo Credit: iStockphoto.com draco77]

-- By Arundhati Parmar, Senior Editor, MD+DI
[email protected]

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