Medtech M&A Picked Up in 2024, But Belt-Tightening ContinuesMedtech M&A Picked Up in 2024, But Belt-Tightening Continues

After a sluggish 2023, medtech M&A rallied this year to deliver a modest increase in deal activity. Inflation eased slightly, which inspired new activity. Also, the impact of GLP-1 drugs was not as dramatic as some feared, and dealmakers may have adjusted to a climate of higher-than-near-zero interest rates.

According to a report from JP Morgan, medtech M&A transactions in the first half of 2024 alone totaled 114, compared to 127 for all of 2023. M&A deal value also climbed to $40.3 billion in the first half of 2024 — not far off the $47.7 billion generated in the entire prior year.

Venture capital investments also increased this year. JP Morgan projects venture investment to reach $19.4 billion this year compared to $15.8 billion in 2023.

Those numbers align with a recent report from Zapyrus, which states total investment for Q3 reached $13.9 billion among 792 medtech companies. That’s the biggest surge since the COVID-19 peak, the report stated. About a third of these companies are planning clinical studies in 2025.

While investment is accelerating, medtech companies have also tightened their belts. Pressure to maintain or improve profit margins has led to layoffs, divestitures, and balance sheet cleanups.

Glenn Snyder, who leads Deloitte’s medical technology practice, relayed results from a poll the company conducted of life sciences and healthcare professionals. When asked if they believe margin pressure is one of the top two challenges for their business, about 9% of biopharma executives said yes, and 43% of medtech execs agreed.

Related:Measuring Medtech's M&A Appetite in 2025

Snyder said negative margins among hospitals and healthcare systems, combined with economic and geopolitical uncertainty, have added to the squeeze. “Companies tend to not want to make big plays or bets when there's a lot of uncertainty,” he said. “However, some of these factors have started moving toward a bit more certainty, which has prompted M&A activity to pick up.”

Patrick Cornelius, a partner at Barnes & Thornburg LLP who works with clients in healthcare and life sciences, said medtech start-ups have generally struggled this year. “A number of earlier-stage medtech companies have had to go through down rounds as they've gone through equity raises,” he said. “Some of them have looked for other means to bridge the gap, potentially to 2025, when valuations may go up a bit.”

Focus shifts

Joe Heanue, PhD, CEO of Silicon Valley-based Triple Ring Technologies, an investment and development company, said in an earlier interview with Snyder that corporate venture and private equity are working together in interesting ways this year.

Related:What Medtech Is Talking About in January

Large medtech companies that have grown through acquisitions are starting to carve out more nimble business units, for example. In January, Montagu Private Equity carved out Cook Medical’s biotech unit and combined it with RTI Medical, a contract development and manufacturing company. Additionally, in March, Johnson Matthey announced plans to sell off its Medical Device Components business for about $700 million, transferring ownership to Montagu.

Generally, the focus this year has been on de-risking assets by way of modest investments. As Snyder explained, de-risking initiatives may include evaluating engineering, supply chain, and product development, for example, under a lens of reducing risk.

2024 medical device highlights

While 2020 was the year of diagnostics, investments in cardiovascular and surgical robotics ratcheted up funding in 2024. Johnson & Johnson’s $13.1 billion acquisition of Shockwave Medical, which developed an intravascular lithotripsy (IVL) platform for coronary artery disease (CAD) and peripheral artery disease (PAD), pointed at an active year to come. Soon after, Becton Dickinson (BD) announced that it would acquire Edwards Lifesciences’ Critical Care Business for $4.2 billion.

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Boston Scientific also had an active M&A year The company announced it would buy Cortex, which develops diagnostic mapping technology to detect potential signs of atrial defibrillation outside pulmonary veins and is also waiting to close a $3.7 billion acquisition of Axonics, a company that develops products designed to treat urinary and bowel dysfunction. As part of the Axonics deal, Boston Scientific stopped offering Coaptite, a product intended to treat stress urinary incontinence in women, as of Nov. 1. Additionally, the company also acquired Silk Road Medical and its platform of transcarotid artery revascularization (TCAR) system this year for $1.16 billion.

Activity in surgical robotics and instruments centered on Stryker’s string of tuck-in acquisitions. In August, Stryker announced it would acquire Vertos Medical, developer of the minimially invasive mild procedure for spinal stenosis, as well as Care.ai, an artificial intelligence-based solution for hospital settings. Other 2024 deals include an acquisition of Artelon, which specializes in soft tissue fixation products, and NICO, which developed an approach to minimally invasive surgery for tumor and intracerebral hemorrhage (ICH) procedures.

Also of note was the ventures of Corza Medical. The surgical technology company, a portfolio company of private equity firm GTCR, closed its acquisition of the TachoSil manufacturing operations in Linz, Austria, which is part of Takeda’s global production network. The acquisition, completed in July, will enable Corza Medical to control manufacturing priorities directly.

Women’s health OEMs also received substantial investment in 2024. Zapier reported that funding for this historically overlooked research area surpassed even cardiovascular devices in Q3 2024 (47.8% of Q3 funding vs 43.1% for cardiovascular).

Other areas to watch include electrophysiology and neurostimulators developed to treat chronic, neurologic, and psychiatric conditions and disorders. Devices that both meet an unmet need and help streamline hospital operations may be a good bet.

“What I hear from my healthcare colleagues is that labor costs are the biggest pressure on hospitals,” Snyder said. “A device that helps streamline labor requirements in a hospital — possibly cutting labor costs or making it easier for a lower-skilled individual to do a higher-skilled job — becomes an attractive investment for the hospital environment. Requiring more labor is going to be an impediment to getting an innovation launched.”

Looking ahead

Executives polled by McKinsey view the overall economy with cautious optimism. The same could be said for medtech.

Pitchbook analysts said they, “expect nominal revenue growth in the mid-single digits for 2025 across most medtech segments, with an exception for high-growth diagnostics companies such as Natera and Exact Sciences,” according to a Q3 2024 report. Analysts also anticipate strong free cash flow (FCF) generation for most public medtech firms.

“I don’t expect a significant difference in 2025,” Cornelius said. “We’ll likely see a continued focus on tuck-in transactions to build out a product suite or help tell the story of a product line that companies can bring to market.”

The ongoing challenges associated with CE Marking under MDR and IVDR in the EU may also lead to increased activity in the US.

“The FDA’s approval speed has improved, which will help US companies get their products to market more quickly, and given the challenges in the EU, will bring more European source capital to the US market,” Cornelius said. “That may provide an uplift in valuation, as there will be more capital competing for those deals.”

Medtech companies planning to launch new products in the coming year may want to consider ways to de-risk their product in the eyes of investors while providing clear value to physicians, patients, healthcare executives, and investors.

“Align your ideas with what the market wants to invest in,” Snyder said. “A lot of corporates are looking for a highly specific investment. If you know what they're looking for, and your innovation aligns, you’re more likely to get your company funded.”