Medtech M&A Trends: CEOs Talk Growth Strategy

Johnson & Johnson CEO Joaquin Duato emphasized the company's strategic consistency regarding capital allocation, with M&A being a critical component of that strategy.

"With the strength of our cash flow and our balance sheet, we have significant flexibility to consider multiple types of transactions," Duato said during the company's most recent earnings call. "And what we have done so far is a demonstration of that with Abiomed, Laminar, Ambrx, and now the planned acquisition of Shockwave."

Duato said J&J will continue to evaluate opportunities "agnostic to the sector and size," and the company has a number of components it is looking for in a potential acquisition:

"That's our M&A strategy, and it's been a cornerstone of our ability to create value, Duato said. "... When we think about M&A, we think in decades, we don't think opportunistically."

Boston Scientific executives noted during the company's last earnings call that its top capital allocation priority remains strategic tuck-in M&A. One example of this is the recent acquisition of B. Braun's endoluminal vacuum therapy portfolio. Boston Scientific also remains in the process of buying Axonics, assuming it satisfies regulatory hurdles.

Abbott has a strong balance sheet and strategic flexibility to add to its business segments, but only if the prospective profitability is right.

"As long as we feel that we can add value to that asset," CEO Robert Ford said during the company's most recent earnings call. "We felt like that about CSI; we felt like that about St. Jude; we felt like that about Alere. And those deals obviously helped reshape the company and accelerate our growth rates."

But the key is being able to bring value to the deal.

"We're not trying to fill some top line gap or some issues," Ford said. "ROIC for us matters. Profitability matters."

Based on executive commentary during ResMed's most recent earnings call, it's safe to say the company is lukewarm toward M&A. The company's CFO said the plan is to continue to reinvest through R&D, pay down outstanding debt, and deploy further capital for tuck-in acquisitions. However, there wasn't much said beyond that, and the bulk of the call focused on the potential impact of GLP-1 drugs on the sleep apnea market.

Stryker CEO Kevin Lobo's comments during the company's recent earnings call left no room for doubt: the company is red hot on M&A this year.

"We have an incredibly healthy pipeline of deals," Lobo said. "Now of course, pipeline doesn't always get realized, right? There's always a washout rate as you go through these processes. But I'm feeling really excited about the pipeline."

Lobo said most of the deals in the pipeline are of the tuck-in variety.

GE HealthCare has the financial flexibility to support future growth, leaving room for organic and opportunistic M&A to accelerate innovation.

The company has been very active on the M&A trail since completing its spinoff, but most of its acquisitions have been rather small. So, what kind of deals are on the CEO's mind in 2024?

"Tuck-in deals of the right size that have a strategic fit into a core business enable us to connect different parts of our portfolio to bring more differentiated capability, that's what we're looking at, both in partnership and in acquisitions," CEO Peter Arduini said.

That said, Arduini added, if a larger deal came up that was a good fit, the company would "obviously take a look at it."

And as we've always said, a larger deal came up, it actually was a really good fit for us, we would obviously take a look at it.

Zimmer Biomet is looking for assets that are mission-centric from a strategic standpoint, and ones that fit into the higher growth segments the company participates in, while also keep an eye on broader diversification, said CEO Ivan Tornos.

"Financially, nothing has changed. We have flexibility to do larger deals, but we like deals where the acquisition price is under $2 billion," Tornos said. "We definitely want to be neutral from an EPS standpoint within two years and then high single–digit ROIC to double–digit ROIC in the five-year time horizon."

When asked about capital allocation during a recent investor meeting, Medtronic CFO Karen Parkhill said the company is focused on balancing its return to shareholders with continuing to invest in the company.

"We're proud to be dividend aristocrats. That's something that we cherish, and we supplement that strong and growing dividend with share repurchases when we don't have the right disciplined tuck-in M&A to do," Parkhill said. "And you've seen that be something that we turn on and off over time. We'll continue to do that because we don't intend to hoard cash on the balance sheet."

When asked about capital allocation during a recent investor meeting, Medtronic CFO Karen Parkhill said the company is focused on balancing its return to shareholders with continuing to invest in the company.

"We're proud to be dividend aristocrats. That's something that we cherish, and we supplement that strong and growing dividend with share repurchases when we don't have the right disciplined tuck-in M&A to do," Parkhill said. "And you've seen that be something that we turn on and off over time. We'll continue to do that because we don't intend to hoard cash on the balance sheet."