Between the impending device tax and a sluggish economy, the table is set for an M&A boom in the medical device space in 2013, Reuters reports.
Analysts and industry execs told the news service that cost pressures from payers and governments are likely to put a squeeze on private device developers and manufacturers, and that will entice big firms like St. Jude Medical ($STJ) and Medtronic ($MDT) to reach for their checkbooks.
Furthermore, the 2.3% tax on U.S. device sales will hit smaller companies especially hard. "Some of that will impact valuations, and as those come down, it may make for more attractive takeout targets," St. Jude CMO John Heinmiller told Reuters.
The likely targets? In the cardiac realm, analysts suggest Edwards Lifesciences ($EW), HeartWare, Thoratec and Volcano. In the orthopedics space, Reuters tabs Nuvasive, Wright Medical and Tornier as potential buyout picks. Device giants may also be smitten with overseas companies, as foreign acquisitions could present a tax advantage for American firms. To that end, Medtronic has said it has its eye on some Chinese devicemakers.
This year, announced medical device M&A deals totaled just $20 billion, the lowest sum since 2009 when devicemakers were wading through the global financial crisis, Reuters points out.
However, analysts attribute that less to the still-tepid market and more to political uncertainty and boardroom shakeups. Mitt Romney has pledged to repeal the Affordable Care Act--and thus the device tax--if elected, and devicemakers might be waiting until after election day before betting big on any acquisition, Reuters reports. Also, Medtronic, Johnson & Johnson ($JNJ), Stryker ($SYK) and Covidien ($COV) have all replaced their CEOs in the past 18 months, and the ensuing adjustment period may have delayed any large buys, the news service says.
- read the Reuters news