The volume and value of medical device deals fell sharply over the first half of the year as the industry contended with disruption related to COVID-19, according to a life sciences report published by PwC on Thursday.
The firm tracked a roughly 26% decline in the number of deals and 88% drop in their value compared to the first six months of 2019. Analysts at PwC said the trend is likely a result of deals being delayed by logistical challenges related to COVID-19.
- The medical device deal data excludes Thermo Fisher Scientific’s takeover of Qiagen. In a separate report focused on the health services market, PwC said the Qiagen takeover drove a 622% increase in the value of M&A in its labs, MRI and dialysis subcategory.
In 2019, the sector saw large deals such as 3M’s $6.7 billion acquisition of Acelity and Stryker’s $5.4 billion takeover of Wright Medical. The overall trend led PwC last year to say companies “appear to be focusing internally to determine how best to manage changing relationships with payors and providers before returning their focus to inorganic growth.”
That analysis led to a prediction for an uptick in activity in 2020. Specifically, the analysts expected industrial products companies to diversify into medtech through M&A and identified existing players such as Siemens Healthineers and GE Healthcare as other likely buyers. PwC foresaw more deals in the $2 billion to $5 billion range and an uptick in divestitures “after years of consolidation.”
Then the pandemic happened. Against that backdrop, no medical device company struck a deal worth $2 billion to $5 billion in the first half of 2020. In fact, the value of all 28 medical device deals combined was less than $2 billion, compared to more than $15 billion over the first half of last year.
Noting that there was only one $150 million-plus deal in the second quarter, the PwC analysts said companies likely faced “timing delays due to logistical challenges in completing deals while managing through the pandemic.” The slowdown in deal volume predates the escalation of the COVID-19 crisis, though. Activity accelerated throughout the period, with 57% of deals coming in the second quarter.
The PwC analysts see signs of potential acceleration to come. One potential driver of M&A is the deferral of elective procedures in response to COVID-19, which the analysts said “could create the need for significant consolidation as companies work to remain competitive.”
The diagnostic sector shows medtech deals can get done in the current environment. PwC’s data on the value of deals involving companies in its labs, MRI and dialysis subcategory is skewed by Thermo Fisher’s takeover of Qiagen. Yet, while the Qiagen deal drove the 622% jump in value, there was also a 12% uptick in the volume of deals. Invitae’s $1.4 billion buyout of ArcherDX is the next largest deal in the subcategory and the wider health services sector.