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Mergers and acquisitions revolutionize the Med-Tech sector

The medical device and MedTech sector continues to expand, according to Statista growing by 34% since 2020 (7.5% average compound annual growth), and is expected to reach $539 billion by 2025, driven by interest rate containment, favorable GDP growth, technological advancements, and growing demand for innovative solutions for an aging population. The projections are clear: the sector will continue to advance at a rate of 5.7% per year until 2029, reaching a volume of 670 billion dollars.

This dynamism has led to a boom in mergers and acquisitions (M&A), making them a key axis of transformation and consolidation in the sector. These transactions seek synergies, portfolio expansion and access to disruptive technologies, while specialized startups become key targets to stay ahead of the curve.

Global M&A deals peaked in 2021 with 1,511 deals, to return to pre-pandemic levels from 2022, with solid mid-market activity and a drop in mega-deals pending a more conducive macro and stock market environment. With this, large multinationals focused their attention on strategic transactions and the divestment of non-essential assets, which were acquired by the middle market and private equity.

In contrast to the stabilisation observed in the global market, the sector’s M&A activity in Spain has experienced explosive growth after the pandemic: compared to the 19 transactions recorded in 2021, in 2022 and 2023 the figure increased to 47 and 45 respectively, reaching a record 55 transactions in 2024. This dynamism is driven by three key characteristics of the sector in Spain:

Firstly, the strong dependence on foreign markets, reflected in a deficit trade balance, in which imports double exports.

Secondly, the importance of the public health system in the sector, representing 80% of the activity and financing a large part of the associated costs. In contrast, the private sector, which, although currently accounts for 20%, shows progressive growth.

And the last key feature is the high fragmentation of the Spanish medical device market. The average turnover of companies is around 11.6 million euros, but most operate with much lower volumes: 76% have a turnover of less than 5 million and almost 90% do not exceed 15 million. At the other extreme, only 4% of companies exceed 50 million euros in revenue, accounting for 61% of the sector’s total turnover.

In this regard, it should be noted that company size not only influences investment and innovation capacity, but also has a direct impact on profitability. Although the sector has attractive margins, with an average EBITDA of 12%, there is a great disparity in the profitability of companies according to their size due to economies of scale: companies with sales of less than 15 million euros have an average EBITDA between 9%-10%, while those that exceed this threshold achieve EBITDAs of more than 13%.  reaching 14% those with a turnover of more than 50 million.

As for the promoters of M&A transactions in the sector in Spain, it can be seen that 56% have been led by Spanish companies seeking to consolidate their national and international positioning, such as Cardiva, which has recently acquired the Italian IQ Medical and previously the Portuguese Overpharma, Werfen, which acquired the Hungarian Omixon in 2024, or Palex, which continues with its goal of becoming the largest medical distributor in the market. southern Europe with acquisitions of several companies such as Normedan, Izasa, Werkstatte Ibérica or Wacrees, among others.

The remaining 44% have been led by international companies seeking to enter the Spanish market. Among the main ones, the French company Morial Surgical acquired Oftaltech Solutions, or, similarly, the Italian Amplifon, which acquired Gaes in 2018 initiating a consolidation process through the acquisition of companies such as OirT or Salesa.

Financial investors have burst onto the scene in recent years, accounting for more than 71% of M&A transactions in the sector, attracted by the prospects for growth and profitability, and by the interest shown by companies in incorporating a partner that provides financial muscle to face the transformations and challenges presented by the sector.

This intense M&A activity has resulted in high valuations, showing a median of 14.4x EBITDA in Europe. The Spanish valuation multiple stands at 10.4x EBITDA in Spain, reflecting the lower average size of our companies. Taking into account the correlation between size and profitability due to economies of scale, transactions above €100 million have reached a multiple of 22.7x EBITDA, while those below have stood at 11.3x EBITDA.

Valuation Multiples in Europe, Med-Tech sector; EV/EBITDA (M€; 2019-2024)

In short, in a sector as atomised as Spain’s, gaining size is imperative to take advantage of economies of scale that allow the absorption of the costs associated with the transformation that the sector presents and its challenges. M&A is playing a crucial role as a catalyst for growth and profitability. Financial investors, who account for 71% of operations in the sector, are aware of the great opportunity represented by undertaking a “buy & build” strategy, which consists of acquiring smaller companies at low multiples, to boost their growth through new acquisitions and selling them at higher multiples. The question that arises is whether, in a sector full of challenges, smaller companies will be able to maintain their competitiveness without joining larger projects, whether they are led by other companies in the sector, both domestic and foreign, or by financial investors.