Rising valuations caused M&As and asset transactions to fall in value by 75% in Q1 2011, reports GlobalData.
A definitive report, 'Medical equipment quarterly deals analysis – M&A and investment trends, Q1 2011', by industry analysis specialist GlobalData reveals that mergers and acquisitions (M&As) and asset transactions, which include change in ownership and control of companies or assets, reported a decrease of 75% in deal values in the first quarter (Q1) of 2011 due to rising valuations.
The industry recorded deals worth $8.7 billion in Q1 2011, compared with $35.2bn in Q4 2010. However, the number of deals increased to 159 in Q1 2011 from 147 in Q4 2010.
The venture capital market reported a decline in the number of deals and an increase in deal values in 2011, while the private equity market recorded a decrease in the number of deals in Q1 2011 to 17, compared with 29 in Q4 2010. By deal type, partnerships stood at the top in the medical equipment industry with 36% of the total deals taking place in March 2011.
In Q1 2011, only two acquisition deals crossed the $1bn mark, one of which was Terumo's announced acquisition of CaridianBCT from Gambro for $2.6bn, while the other was Forest Laboratories' pending acquisition of Clinical Data for $1.2bn.
Healthcare IT, in vitro diagnostics and cardiovascular devices were three of the key markets for active buyers in Q1 2011. The Healthcare IT market recorded 33 deals worth $497m; the in vitro diagnostics market 24 deals worth $1.6bn; and the cardiovascular devices market 16 deals worth $1.2bn.
The average deal value decreased from $529m in Q4 2010 to $176m in Q1 2011. The median value of the deals also decreased from $61m in Q4 2010 to $36m in Q1 2011.
GlobalData analyst Bhaskar Vittal says: "More consolidation is expected in the medical equipment market, especially in healthcare IT, in vitro diagnostics, orthopaedic devices and cardiovascular devices, as companies look to fill their portfolio gaps."
Global equity offerings, including initial public offerings (IPO), secondary offerings and private investment in public equities (PIPEs), recorded a decline of 19% in the number of deals and 44% in deal value in Q1 2011. The segment recorded 77 deals worth $1.7bn in Q1 2011, compared with 96 deals worth $3bn in Q4 2010. Out of 77 equity offerings reported in Q1 2011, 15 were secondary / follow-on offering deals worth $757m, nine were IPOs worth $509.4m and the remaining 53 were PIPE deals worth $411.1m.
Debt offerings, including secondary offerings and private debt placements, recorded an increase in the number of deals and a marginal decrease in deal values in Q1 2011. The segment reported 31 deals worth $11.4bn in Q1 2011, compared with 30 deals worth $11.9bn in Q4 2010.
Venture capital investments
The venture capital (VC) market registered a decrease in the number of deals and an increase in deal values in Q1 2011 with 150 deals worth $1.1bn, compared with 155 deals worth $866.6m in Q4 2010.
In Q1 2011, start-up stage deals accounted for 58% of the total deals and dominated the VC market, followed by growth capital / expansion stage deals with a share of 29%.
New Enterprise Associates topped the list of venture financing firms by participating in nine deals with a total deal value of $169.3m during the last four quarters (Q2 2010–Q1 2011). "Venture capital investments may slow down further due to healthcare reforms in the US," says Vittal. "This may affect both start-up companies and capital/expansion stage deals."
M&A outlook worldwide
North America reported a sharp decline in deal values in Q1 2011 due to the continued pressure of healthcare reforms enacted last year affecting US medical devices companies. The region reported deal values worth $20.5bn in Q1 2011, compared with $34.2bn in Q4 2010, reflecting a decrease of 40% in value. However, the total number of deals increased to 503 deals in Q1 2011 from 449 deals in Q4 2010.
Furthermore, Europe and Asia Pacific regions registered an increase in the number of deals and a decrease in deal values in Q1 2011. Europe recorded 175 deals worth $2.8bn in Q1 2011, compared with 131 deals worth $17.6bn in Q4 2010. Asia Pacific reported 86 deals worth $524.6m in Q1 2011, compared with 73 deals worth $2.5bn in Q4 2010.
"Asia Pacific will continue to see an increase in the number of deals as major medical device firms expand into the high growth markets of China and India," concludes Vittal.