Bolt-on acquisitions continue to rise in medtech

As market pressures have increased, the pace of consolidation in the medical device industry has been accelerating in the past five years. However, the game-changing megamergers may be behind us.

The only milestone merger that happened in 2016 in medical technology (“medtech”) was Abbott Laboratories’ acquisition of St. Jude for $25 billion. Other key multibillion-dollar deals so far this year have been Abbott’s buyout of Alere for $5.8 billion, Canon’s acquisition of Toshiba Medical Systems for $5.9 billion, and Johnson & Johnson’s acquisition of Abbott Medical Optics from Abbott Laboratories for $4.3 billion.

While large, transformative transactions are rare, the trend towards strategic merger and acquisition (M&A) activities at a tuck-in level in medtech continued in 2016. In fact, medical device companies have demonstrated an increasing appetite for strategic “bolt-on” acquisitions that would fill their portfolio gaps and subsequently help them establish more comprehensive solutions or expand their geographical reach. For example, Thermo Fisher has been pursuing a steady M&A strategy in its life sciences business and secured a string of bolt-on deals in 2016 alone, including the acquisitions of biological analysis toolmaker Affymetrix; leading high-performance electron microscopy provider FEI; and a stem cell and reagent firm, MTI-GlobalStem.

Heading into 2017, although the new landscape favors large companies who can leverage economies of scale, GlobalData anticipates the calming of the high-profile M&A scene. Instead, the shift to strategic M&A activities at a tuck-in level will continue, as medical devices companies start to reconsider their approach to dealing with execution and synergy capture. Allergan’s acquisition of Zeltiq ($2.5 billion) in February is a good example of companies leveraging existing competitive advantages and seeking inorganic growth through more focused M&As that are complementary and strategic. By adding the body contouring CoolSculpting System to Allergan’s facial aesthetics, plastic surgery and regenerative medicine offerings, the company is poised to create a world-class aesthetics business.