The U.K. Takeover Code, tax inversion, Treasury rules.
The summer of med tech (and pharma) merger mania certainly broadened our lexicon. It also transformed the medical device industry.
The numbers make that clear. Deal volume and value exploded during med tech merger mania. Essilor International SA's acquisition of Transitions Optical for $1.73 billion was one of the largest deals announced in 2013, but it would barely make this list. Meanwhile, Medtronic's ($MDT) now-finalized $50 billion takeover of Covidien is the life science industry's second largest inversion deal, following the Allergan/Actavis ($ACT) pharma tie-up.
In the wake of Pfizer's ($PFE) failed inversion deal with AstraZeneca ($AZN)--which made the U.K. Takeover Code famous--came a wave of life science deals that utilized that tax-saving tactic, including four of the 10 largest med tech deals announced in 2014. Popular and political anger forced the Treasury Department to issue rules designed to deter the practice.
The pace of dealmaking slowed down after that, but it did not derail any announced med tech deals (though it did kill some pharma transactions). After all, there are other reasons for med tech mergers. For example, hospitals are becoming tougher negotiating partners when it comes to bulk purchase contracts with device companies due to consolidation among healthcare providers. In addition, hospitals are also purchasing in greater bulk by buying fewer models of the same device.
These trends are encouraging device companies to bulk up too, necessitating a reduction in the total number of suppliers. Changes are being felt most strongly in the orthopedics industry, which accounts for three of the top 10 deals.
And if Stryker's ($SYK) long-rumored purchase of the U.K.'s ArthroCare occurs, that would add a fourth big ortho-merger to the mix. Other targets still up for sale include Johnson & Johnson ($JNJ), stentmaker Cordis and Bayer's diabetes device business. The price tag for both is in the $2 billion range.
Both companies just announced significant progress on their sales. J&J is reportedly ready to sell off its Cordis business to Cardinal Health for as much as $2 billion, while Bayer is slated to sell its diabetes devices business to Panasonic Healthcare.
Also in 2015, Pfizer broke the short winter dry spell in med tech deals by purchasing Hospira ($HSP) for $17 billion. The deal was primarily driven by that company's biosimilar pipeline, but Pfizer CEO Ian Read felt compelled to tell investors that he likes Hospira's infusion pumps business and intends to continue managing it.
Clearly, the M&A wheeling dealing is an ongoing phenomena.
Wall Street has cheered at med tech merger mania. Investors like the tax savings from inversion, as well as the associated synergies and cost reductions. Companies can focus more intently on core competencies once they've sold peripheral businesses to other players.
But venture capitalists and startup players are nervous. The reduction in industry bigwigs will make it harder to find exits. Medtronic and Covidien had about a dozen "bolt-on" acquisitions last year, but now they are one company. The integration effort and cost of the Covidien transaction means the new Medtronic will have less room to digest others.
Read on to learn more about the 10 biggest medical device and diagnostic mergers announced in 2014, which is bound to go down as the year of med tech merger mania. The wooden medal for 11th place goes to Philips Healthcare's ($PHG) purchase of imaging specialist Volcano for $1.2 billion.
-- Varun Saxena (email | Twitter)