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Report: Medtech M&A Activity Skyrockets in 2006Report: Medtech M&A Activity Skyrockets in 2006

Richard S. Cohen

January 1, 2007

5 Min Read
Report: Medtech M&A Activity Skyrockets in 2006



In 2006, the medical device industry saw mergers and acquisitions (M&A) activity increase dramatically, both in the number of deals reported and the average size of the transactions. Although each transaction is unique, 2006 medical device deal activity reflected several prominent trends.

In 2005, the Walden Group Inc. (Tarrytown, NY) recorded fewer than five medical device deals with a transaction value of more than $100 million. In 2006, more than 20 such deals were logged in the firm's Strategic Healthcare M&A Report for the fourth quarter and full year 2006 (see table).1

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M&A activity dramatically increased across many industries last year. Part of the rise can be attributed to an expanding U.S. economy, increases in corporate profits and stock prices, technological improvements, and growing product demand. In particular, medical device markets are expanding not only because of the aging baby-boom population and longer life spans, but also because new geographical frontiers--including China, India, and Eastern Europe--are opening up. Last year, the stock prices of large medtech companies were hurt by the aftermath of 2005 product recalls, uncertainty concerning long-term safety of certain implantable devices, and pricing pressures, among other things.

In the medical device market, deal sizes are getting bigger--much bigger. During 2005, only the acquisition by equity firm Kohlberg Kravis Roberts & Co. (New York City) of contract manufacturer Accellent Inc. (Wilmington, MA)--itself the product of numerous mergers--topped $1 billion in transaction value. In contrast, 2006 saw a quantum leap in deal size. Boston Scientific Corp. (Natick, MA) pried Guidant Corp. (Indianapolis) from Johnson & Johnson (J&J; New Brunswick, NJ) in a landmark $27 billion deal, and three prominent private equity firms announced a record buyout of Biomet Inc. (Warsaw, IN) for $10.9 billion. Medtech's 2006 billion-dollar club also included the acquisition of Guidant's vascular and endovascular businesses by Abbott (Abbott Park, IL) for $4.1 billion, the purchase of Inamed Corp. (Santa Barbara, CA) by Allergan Inc. (Irvine, CA) for $3.4 billion, and J&J's purchase of stent maker Conor Medsystems (Menlo Park, CA) for $1.4 billion.

Swelling with invested capital in 2006, private equity firms across multiple industries have risen to far greater prominence as opportunistic acquiring behemoths. In 2006 private equity firms led buyouts of more than 1000 companies in the United States, compared with 664 in 2004 and 324 in 2001, according to financial data provider Dealogic (New York City) . Pension fund managers are allocating more money to private equity, and lenders are loosening up loan terms.

The Biomet buyout leads the 2006 medical device buyout list. In addition, Roundtable Healthcare Partners (Lake Forest, IL) exited handsomely in selling American Medical Instruments (AMI; Dartmouth, MA) for $785 million--about four and a half times AMI's annual sales. Similarly, Tailwind Capital (New York City) profited from its sale of Aircast to dj Orthopedics (Vista, CA) for $290 million--about three times the company's annual revenues.

Also during 2006, American Securities Capital Partners (New York City) sold Miltex Instruments (York, PA) to Integra Life Sciences (Plainsboro, NJ). Texas Pacific Group, which is partnering with Apollo Management to purchase Harrah's Casino for $29 billion, entered the medical device space with its $540 million acquisition of the transfusion therapies business of Baxter Healthcare (Deerfield, IL). This trend is continuing into 2007 with Blackstone's recently announced $3.3 billion buyout of Cardinal Health's pharmaceutical technologies and services business.

The medical device sectors most active in M&A reflect the incidence of the underlying medical conditions that the devices treat. In 2006, due to high volumes of patient procedures, the cardiovascular and orthopedic areas continued to attract significant deal activity. Boston Scientific's purchase of Guidant and J&J's forward-looking purchase of Conor led the cardiovascular deals. Orthopedics deals were represented by the Biomet buyout; Kyphon's purchases of St. Francis Medical Technologies Inc. (Alameda, CA), as well as the spine-related assets of Disc-O-Tech Medical Technologies Ltd. (Herzeliya, Israel) and its U.S. subsidiary; the purchase of Blackstone Medical Inc. (Springfield, MA) by Orthofix Inc. (McKinney, TX); dj's purchase of Aircast; and the acquisition of Compex Technologies Inc. (New Brighton, MN) by Encore Medical Corp. (Austin, TX). Allergan's purchase of Inamed reflects the growing importance of the aesthetic industry in catering to the population's desire not only to feel good, but also to look good.

In 2007, the medtech industry can expect continued consolidation in core device areas, with smaller companies seeking to fill niches left open by larger companies. Manufacturers will also continue their expansion into China and other developing regions. For example, Art Collins, chairman and CEO of Medtronic Inc. (Minneapolis), has said the company's products are underpenetrated in markets outside the United States, and he expects the pace of healthcare mergers to pick up in the next few years. At a recent analyst meeting, Medtronic appeared quite aggressive in pursing new opportunities.2 Other major medtech manufacturers are expected to adopt similarly ambitious strategies for growth.

For a comprehensive look at the latest developments in the medical device industry's hottest sectors--including major M&A activity--look for "The Medtech Marketplace in 2007" in the January/February issue of MX: Business Strategies for Medical Technology Executives .


1. Strategic Healthcare M&A Report (Tarrytown, NY: Walden Group, January 2007); available from Internet: http://www.waldenmed.com/newsletters.asp.

2. "Medtronic Looking to Beef Up with Acquisitions," CNN Money [online] (January 2007); available from Internet: http://money.cnn.com/2007/01/19/news/companies/medtronic.reut/index.htm?postversion=2007011912.

Richard Cohen is a principal at the Walden Group Inc. (Tarrytown, NY; www.waldenmed.com), a strategic investment-banking firm specializing in the healthcare industry.

© 2007 Canon Communications LLC

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