Report: Big device M&A exits held their own in 2012

While medical device venture investing remains anemic, companies in the sector held their own in 2012 in terms of major M&A exits that matched 2011 numbers, Silicon Valley Bank concludes in a new report.

Take a moment to digest that hopeful kernel of news. And then consider this: The dollar values of those M&A transactions continued their plunge.

The investment bank's annual healthcare report notes that the industry generated 17 "Big Exit" acquisitions in 2012, the same as in 2011. But while the number of deals remained on par year over year, their dollar value declined. In 2012, the average upfront deal value dropped to $123 million, versus $186 million the year before. And the 2012 average value is down a massive 65% from its 2009 high point of $434 million, the report notes. (Silicon Valley Bank defines "Big Exits" as upfront payments of more than $50 million for device and service companies, and $75 million for biotechs.)

And so the news for venture-backed device companies remains ultimately downbeat. Device company IPOs have been all but nonexistent, so the only option for an exit strategy in most cases has become M&A. While venture investment and IPOs have rebounded for biotechs in 2013, medical device companies have been left to grab for a diminishing pot of venture investment cash, which, in turn, puts more pressure on the M&A exit strategy as it did in 2012.

We've all heard by now that venture investment in 2012 in the healthcare space focused on safer, later-stage opportunities, to the detriment of Series A funding that could jump-start innovative young upstarts. Silicon Valley Bank reaffirms that trend in its report, blaming it on "overfunding" that benefited healthcare companies across the board in the early 2000s.

"Overfunding has created a larger pool of older companies that have achieved some technology risk mitigation but still need additional equity to support development, clinical or commercial milestones," the report states. And for device companies, at least, the M&A option has helped fill the gap, even though the average dollar value of those deals has declined.

Overall, Silicon Valley Bank tallied up 38 healthcare/life sciences "Big Exits" in 2012 including biotech, healthcare services and medical devices, reflecting an 8-year high. In the last three years, "Big Exit" M&A generated $16 billion in payouts to investors, according to the report.

Jonathan Norris, a managing director with SVB Capital and an author of the report, said in a statement that overall numbers for 2012 reflect the second year in a row in which healthcare generated the most VC-backed "Big Exits." And with the predictions that 2013 will see more VC declines, this should continue, he noted.

"Coupled with an impending decrease in venture capital investment in the healthcare sector and a strong biotech IPO market, we expect positive future returns for firms that have capital to deploy," he said.

- read the release
- and here's the report (PDF)

Special Reports: Top 10 Med Tech Investments of Q2 | Blockbusters and bloodlettings: A look at 2013's hot M&A start