Big medical device companies focus on small-scale deals

medtronic
The Medtronic Inc. headquarters building stands in Minneapolis, Minnesota, U.S., on Monday, June 16, 2014. Medtronic Inc., the second-largest maker of medical devices, agreed to buy Covidien Plc for $42.9 billion in cash and stock as it transforms into a broader-based company bolstered by new tax advantages. Photographer: Ariana Lindquist/Bloomberg

Large medical device companies are focusing on small tuck-in deals in 2019 to bolster growth and research & development. Companies such as Abbott Laboratories (NYSE: ABT), Johnson & Johnson (NYSE: JNJ) and Medtronic (NYSE: MDT) are looking to strengthen their product lineups as they face increasing demand from an aging population. Meanwhile, lifespans are increasing and the middle class is expanding in developing countries, providing new markets. Activity is being driven by interest from investors and private equity firms, according to analysis from Fitch Solutions.

Small bolt-on deals offer an easy way to provide for inorganic growth with a high return on investment, fleshing out portfolios with complementary technologies or new ones. For example, Medtronic will acquire EPIX Therapeutics, which manufactures devices to treat cardiac arrythmias, in a deal to be completed in the fourth quarter of 2019 for an undisclosed value. This fits in with Medtronic’s interventional cardiology expertise.

“Smaller and more frequent deals are able to support a more comprehensive growth strategy for companies and can often deliver substantially higher returns,” according to commentary by Fitch. “By undertaking regular, small, low-value acquisitions, companies can further solidify their position in markets they are already participating in.”

The top three small deals by total announced value cited in the analysis are:

· Boston Scientific (NYSE: BSX) exercised an option to acquire the remaining shares of Millipede, which manufactures a cardiac device to treat mitral valve regurgitation, in a deal announced in December, for $325 million in cash.

· RTI Surgical (NASDAQ: RTIX) purchased Paradigm Spine, which focuses on spinal implant technology, in a deal announced in November, for $149.36 million in cash and stock.

· Smith & Nephew (NYSE: SNN) entered into a deal with private equity firms 5AM Venture Management, Versant Ventures Management and Novo Holdings to purchase Ceterix Orthopaedics, which focuses on knee health, in a deal announced in December, for $50 million in cash, with up to $55 million due over the next five years depending on performance.

Smaller, strategic acquisitions such as these will set the tenor of medical device deals in 2019 as companies seek to the latest technology in a field where opportunities are on the rise.

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