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Exit Horizon – M&A Activity and Private Equity Going into 2020

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I recently had the opportunity to read Bain & Company’s annual Global Healthcare Private Equity and Corporate M&A Report – 2019. While the current report looks back to 2018, it provides some insights as to what’s currently unfolding and what we might expect in 2020. For mid-market medical device companies, these insights may open the door for strategic plays in the coming year.

Let’s set the stage; According to Bain’s earlier reporting, in 2017, Private Equity and Corporate M&A medtech/device deal value more than double (from 2016) to $6.5 billion. Deal count grew from 37 transactions to 51. In 2018, deal value jumped by 62%, to $10.5 billion. Deal count grew from 51 transactions in 2017 to 67 transactions in 2018. In the space of three years, deal value has more than tripled while the number of deals has nearly doubled.

Large players (think Big Med Device) and large deals continue to inflate valuations and are forcing smaller Private Equity players to look for value with niche companies. This is opening the door for innovative, strategically minded, mid-market companies to access Private Equity capital to scale and accelerate growth.

Adding to this dynamic landscape is the trend with Big Med Device to continue to focus on core, strategic assets. In doing so, they’re continuing to shed non-strategic assets; carve-outs of ancillary products that are not key to their growth strategies going forward. Once again, this opens the door for mid-market medical device to get creative in how they manage their growth. A Big Med Device’s ancillary products may be a mid-market’s key to leapfrogging their competition or to expanding their market footprint in support of gaining greater access to consolidating healthcare delivery systems.

We’re also long overdue for an economic contraction. The trucking/transportation sector and the manufacturing sector are already in recession (defined as two consecutive quarters of economic regression). Private investors see healthcare investments as relatively insulated from recessionary pressures (versus consumer-driven company investments or public market investments). These concerns are making private placements in medical technologies more attractive.

There’s another source of private funding that’s looking more and more to medtech/device; Family Offices. According to the Global Family Office Report by Campden Research, 55% of Family Offices are preparing for a recession in 2020. (Family Offices manage private, family fortunes. U.S. Family Offices are managing fortunes that average more than $1.3 billion each.)

Perhaps more importantly, next generation heirs to these fortunes are also rethinking their families’ philanthropic giving to health-related non-profits. Lack of progress through non-profits, in addressing chronic conditions and endemic disease states, are triggering a rethinking of resource allocation. Some are asking themselves if the family (and their legacy) might see greater results in solving these problems by investing in a promising medical technology company versus continuing to donate to bureaucratic non-profits?

The fact of the matter is, good deals are far more scarce than capital, and will continue to be so going into 2020. A creative, out-of-the-box, strategic approach to growth is within reach for many mid-market companies in our industry.