Health tech M&A could accelerate after mixed start to 2024, analysts say

Brief description of the dive:

• Needham analysts said Friday that the annual number of medical technology acquisitions will fall to the lowest level since 2017.
• Volumes are down in the middle of the year, but values ​​are up. Analysts see potential for increased activity, citing stabilizing interest rates and low valuations. Still, they identified antitrust concerns as a headwind that could persist at least until the presidential election.
• Needham analysts removed Nevro from their list of top 25 potential takeover targets due to its “modest growth rate.” Neuropace, Zimvie, Artivion and Masimo joined the list to replace Nevro and companies that are part of the deal, such as Shockwave Medical and Silk Road Medical.

Diving Insight:

Around the middle of 2024, Needham analysts’ database of health tech M&As included 131 deals valued at $32.4 billion. Extrapolating to the rest of the year, the analysts estimated there could be 269 deals valued at $66.4 billion in 2024. If the forecast holds true, there will be fewer deals in 2024 than in any year since 2017.

However, analysts see potential for growth in mergers and acquisitions. Analysts write that interest rates “appear to have peaked” and may fall, and health technology markets have stabilized. Small- and mid-cap valuations are low by historical standards.

While these factors support increased dealmaking, analysts said the U.S. Federal Trade Commission has “aggressively challenged deals under the Biden administration.” They added that mergers and acquisitions could increase if former President Donald Trump wins the presidential election in November and outlined what they believe larger health technology companies are looking for in acquisition targets.

“We believe that high growth and large market opportunities are key,” the analysts said. “Second, we believe they also favor companies with high gross margins, differentiated products and barriers to entry (patents, regulatory approvals, etc.).”

These factors influence analysts’ list of the top 25 potential acquisition targets. Three companies from the previous version of the list accepted takeover offers. Shockwave Medical has become a part Johnson & Johnson signs $13.1 billion deal. Transaction strengthens J&J’s commitment to treating coronary and peripheral artery disease.

Boston Scientific, which is said to be I was considering buying Shockwavewas responsible for the remaining two transactions. Business agreed to buy urinary and intestinal disorder company Axonics for $3.7 billion in January, despite an FTC investigation prevented this since the transaction closes in the first half of 2024, Boston Scientific is also working on closing acquisition of Silk Road Medical for $1.26 billion.

Those acquisitions helped drive a rebound in deal values ​​in the first half of 2024. Needham analysts calculated that medtech companies spent more in the first half of the year than they did in all of 2023, although deal values ​​for the full year are likely to be below the peak reached in 2021.

Neuropace, Zimvie, Artivion and Masimo replaced the three acquired companies and delisted Nevro on Needham’s list of potential takeover targets.

Zimvi’s promotion to the top 25 targets comes days after Bloomberg reported that the dental device maker considering selling. Artivion sells aortic and mitral valves, Masimo supplies pulse oximetry devices, and Neuropace sells epilepsy treatments. Four companies join the medtech ranks, including Tandem Diabetes Care on the list.