Medtech merger and acquisition activity has slowed since 2017, Needham analysts say

The number of annual medtech acquisitions is projected to hit its lowest point since 2017, according to Needham analysts.

Complex interplay of factors

Midway through the year, deal volumes have decreased, yet deal values have surged.

Analysts foresee the potential for increased activity due to stabilising interest rates and low valuations, although antitrust concerns remain a barrier that may hold until the next presidential election.

These fluctuations in medtech M&A activity underscore the complex interplay of market conditions, regulatory landscapes and strategic priorities shaping the sector in 2024.

As we passed the midpoint of 2024, Needham's database recorded 131 medtech mergers and acquisitions amounting to $32.4 billion.

If trends continue, analysts estimate the year could end with 269 deals valued at $66.4 billion – the lowest deal count since 2017.

Resurgence on horizon?

Despite the decline in deal numbers, the analysts see several factors that could drive a resurgence in M&A activity.

Interest rates, which look like they might be reaching their peak, may decrease. Meanwhile, medtech markets have stabilised. Additionally, valuations for small- and mid-cap companies are historically low.

One perceived barrier is the US Federal Trade Commission's (FTC) aggressive stance on challenging deals under the current Biden administration.

For this reason, some analysts suggest that M&A activity could increase if the presidency changes hands following the upcoming presidential election.

The analysts outlined criteria that larger medtech companies were prioritising in plotting their acquisition targets.

"We think the primary things are high growth and large market opportunities," they said, adding that companies also favoured targets with high gross margins, differentiated products and regulatory or patent barriers to entry.

Needham revises list

In light of these criteria, Needham revised its list of the top 25 potential acquisition targets.

Nevro was removed due to its "modest growth rate", replaced by Neuropace, Zimvie, Artivion and Masimo.

The list also saw changes following recent acquisitions. Johnson & Johnson's $13.1 billion acquisition of Shockwave Medical and Boston Scientific's deals for Axonics and Silk Road Medical influenced the updated list.

The elevated deal values in the first half of 2024 stem from significant transactions, including Johnson & Johnson's strengthening of its coronary and peripheral artery disease treatment portfolio through the Shockwave Medical deal.

Boston Scientific's ongoing efforts to close its $1.26 billion acquisition of Silk Road Medical and its $3.7 billion bid for Axonics, though delayed by an FTC investigation, also contributed to the increased values.

The newly included companies reflect diverse medtech niches.

Zimvie, recently reported by Bloomberg to be considering a sale, specialises in dental devices. Artivion focuses on aortic and mitral valve replacements, Masimo is known for pulse oximetry devices and Neuropace offers epilepsy treatments.

These companies join established players like Tandem Diabetes Care on the list of potential takeover targets.