The top 10 M&A targets in medtech

Many of our top M&A targets offer unique solutions through AI, sensors and the cloud to make medical technologies more portable, so providers can go to where the patients are. (Getty Images)

It’s no surprise that the first half of this year brought a nosedive in medtech mergers and acquisitions.

As the novel coronavirus spread, many aspects of the industry got put on hold—and not just elective surgeries, routine checkups and health screenings, as patients kept their distance from hospitals and waiting rooms. The sheer logistics required to complete a multimillion or multibillion-dollar deal all but ground to a halt as people learned how to work from home.

According to a report from EvaluateMedtech, an anemic 57 deals closed in the first six months of 2020. Their average size of $108 million—and a total value of under $2 billion—marked the low point of the past decade.

Meanwhile, the total sum of new deals announced barely passed $16 billion—and the lion’s share of that came from one deal, Thermo Fisher’s $12.5 billion offer for the diagnostics maker Qiagen. What's more, that deal later evaporated after shareholders saw a rosier future in COVID-19’s forever-unmet demand for testing—leaving Invitae’s $1.4 billion takeover of the cancer-focused ArcherDX in the top spot.

Still, PwC figured the pandemic could end up triggering new deals. In a mid-year report, the firm said the strains placed on the medical device industry could create the need for significant consolidation going forward, as players look to stay competitive.

It was at least as accurate as any horoscope. In week one of August, two outliers emerged within three days: Siemens Healthineers’ $16.4 billion outlay for Varian Medical Systems and Teladoc’s $18.5 billion pitch for Livongo. Later in September, Illumina would put down $8 billion for its former spinout, the liquid biopsy maven Grail. Combined, that trio not only dwarfed the total value seen so far in 2020, but also surpassed the entirety of 2018’s $29 billion in medtech M&A activity, and approached 2019’s $49 billion.

RELATED: Special Report—The top 10 medtech deals of 2019 

The forces and appetites that drove those deals remain even as the pandemic creates new ones—and plenty of buyout prospects could feed them, as our M&A targets list shows.

Siemens’ takeover of Varian, for instance, aims to use the latter’s radiation therapy offerings to build a singular cancer care platform that spans screening and diagnosis to treatment delivery and recovery. It demonstrates "the hot therapeutic category of oncology, plus digital opportunities for them to strengthen their portfolio," PwC’s U.S. health industries leader, Karen Young, said in an interview.

RELATED: Telehealth could grow to a $250B revenue opportunity post-COVID-19

Meanwhile, Teladoc’s bid for Livongo reflects the growing importance of virtual healthcare platforms, as the world recalibrates toward providing services with as little face-to-face interaction as possible. “With telemedicine and people having their consultations with physicians remotely ... the patient satisfaction numbers on those programs are astronomical,” said Pedro Arboleda, a managing director at Deloitte. 

“People really like it, and why not?" Arboleda said in an interview. "It’s better than having to go to the physician’s office and wait there—you’d rather be waiting at home on hold.” And companies outside telehealth are also looking to “COVID-proof” their portfolios in this way, he said, through connected devices and remote technologies.

Many of Fierce Medtech’s picks for the top M&A targets fit the bill: companies offering unique solutions through artificial intelligence, sensors or the cloud—as well as upcoming disruptors making medical technologies more portable, so providers can go to where the patients are and not the other way around.

RELATED: Special Report—FierceMedTech's 2019 Fierce 15

But as we begin to close out a tumultuous 2020 and move into the next year, which of the top medtech companies are still in the market for a deal—and what sorts of deals do they want?

Just about all of them are shopping, said Raj Denhoy, managing director and an equity research analyst at Jefferies. The course set by large- and middle-market cap devicemakers to continue growing their businesses hasn’t changed, despite the stormy weather presented by COVID-19. 

Dealmaking has been "part of the DNA of the space for a long time,” Denhoy said. “In some respects these companies have become a conduit into hospitals, and more of a sales channel, as opposed to development companies, as a lot of the products come from the outside for them. They’re always looking for things to feed into that.”

The "flavor" of acquisition has changed a bit, though, he said. “There was a period of time where companies were doing acquisitions for scale," Denhoy said. But investors "generally prefer these companies grow faster, and scale unto itself hasn't driven that. It's found in new products and innovation, so that's where these companies are looking.”

At the same time, the pandemic has changed the way the winds blow—filling the sails of companies able to offer diagnostic tests, for example, while leaving others in the doldrums.

There have been huge revenues from coronavirus screening, “but what everybody worries about is what happens when it starts to go down,” Denhoy said. “At some point, hopefully, we're not testing for COVID forever at the rates we are now—and so these companies have to deploy this windfall of cash they've got, to maintain some level of growth as COVID starts to wane.”

RELATED: One pandemic, $2 billion, 3 months: Top COVID-19 player Thermo Fisher posts hefty Q3 revenue

Take Hologic, which saw molecular diagnostics sales jump 375% year-over-year in its last fiscal quarter, raking in nearly $820 million from the sector alone. That helped offset declines in other businesses, including among its other test offerings, as well as in its gynecological surgery and mammography divisions. Companies such as Abbott, BD, Roche and Thermo Fisher have also found themselves in similar straits.

Whether we’ll see more multibillion-dollar deals before year-end remains unknown, but the following 10 companies will be there when the industry comes up for air, even if one of them seems to be spoken for.

“This industry thrives on deals, and it thrives on innovation through deals—so we think that will still continue, it's just going to get pushed out,” said PwC’s Young. “And I think some people will take the opportunity to look for innovation, and how to emerge stronger post-COVID."

The top 10 M&A targets in medtech