Medtech Mega Mergers: Cautionary Tale or Compelling Growth Strategy?

This week in Pedersen’s POV, our senior editor revisits the trend of “biggering” in the medical device industry through a new lens.

Amanda Pedersen

April 8, 2024

3 Min Read
Graphic featuring headshot of MD+DI Senior Editor Amanda Pedersen and the logo for her weekly opinion column Pedersen's POV

The medtech industry could see the return of blockbuster M&A if Johnson & Johnson’s $13.1 billion Shockwave deal is any indication.

News of the deal didn’t exactly come as a shock to the MD+DI newsroom on Friday, given the rumors leading up to the announcement. But the amount of the proposed acquisition did spur some excitement. It’s the biggest medtech M&A since J&J’s $16.6 billion acquisition of Abiomed in 2022.

The deal also lends credence to McKinsey analysts’ thesis that big medtech deals could be making a comeback.

Chatting with Editor-in-Chief Omar Ford on Friday about the J&J deal and the overall uptick of medtech M&A this year, I readily agreed that the trend is a good sign for the industry. And that realization had me thinking back to a blog post I wrote another lifetime ago (or so it seems) for a publication now known as BioWorld MedTech. In that 2016 post, I questioned the impact that medtech “biggering” would have on innovation, pointing to Dr. Seuss’ “The Lorax” as a cautionary tale.

Does my current enthusiasm for the medtech M&A trends we’re seeing so far in 2024 negate my earlier position on industry mega mergers? I spent quite a bit of time over the weekend considering this. I remain just as concerned today as I did eight years ago about the potential threat mega mergers pose against innovation, medtech customers, and patients. But in many ways, this isn’t the same industry as it was then.

Today, medical device companies are still learning to operate in a post-COVID world. McKinsey analysts argue that M&A can “help organizations serve more patients in more ways, enabling them to access new patient pools, scale for better commercial operations, divest distracting and underfunded businesses, and add new capabilities in digital or R&D.”

While big deals have historically meant “big bets and big risks,” McKinsey noted, two factors make the time ideal for a return of big M&A in medtech. First, the analysts point to the rising importance of margin improvement relative to valuations. Second, they note the evolving relationship between medtech companies and their customers.

“Because of the increasing adoption of value-based care and the rise of new digital ecosystems ... health systems consider medtech companies to be end-to-end partners rather than simply providers of devices,” the McKinsey analysts write. “Large deals can help medtech companies integrate offerings across portfolios, making it more likely that a health system will designate a medtech company as a partner of choice.”

I tend to think that making the right deals – deals that will enable companies to gain or maintain category leadership – is more important than size.

The management team at J&J seems to share that philosophy. It was about this time last year that J&J CFO Joe Wolk told analysts the company seeks opportunities to complement its current portfolio with acquisitions that build upon J&J’s capabilities, address portfolio gaps, or play in higher-growth markets while yielding solid financial returns.

“And then we want to make sure that we compensate risk – compensate shareholders for the risk that we're bearing on their behalf when we do so," Wolk said. "I would not get overly locked into size. Johnson & Johnson, quite frankly, [has] been built through a number of smaller acquisitions, and really the outliers are these larger acquisitions. But we look at really the strategic merit and then the financial value creation and don't get locked into saying something is too small or too big with respect to adding to our already dynamic internal portfolio and pipeline."

As long as that emphasis on strategic fit prevails, I welcome an uptick in M&A across the medtech industry. I do remain cautious, however, of mega mergers that seem to be more motivated by size and corporate greed than the opportunity to better serve customers and their patients.

About the Author(s)

Amanda Pedersen

Amanda Pedersen is a veteran journalist and award-winning columnist with a passion for helping medical device professionals connect the dots between the medtech news of the day and the bigger picture. She has been covering the medtech industry since 2006.

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