MEDICAL DEVICES – VIGOROUS M&A ACTIVITY IN THE MEDTECH SECTOR
Innovation, technology and growth drivers of M&A
The growing demand for innovative and technological medical solutions, as well as the aging population and the increase in life expectancy mean that the MedTech sector is experiencing significant growth. Specifically, and according to data from Statista, the size of the global MedTech market has grown by 34% since 2020 (7.5% CAGR) and is expected to reach $508 billion by 2024.
Forecasts suggest that this trend will continue in the coming years due to lower interest rates, GDP growth, technological advances and the growing demand for better solutions for increasingly complex treatments by an increasingly ageing population. This will increase health spending by governments and individuals. In this regard, Statista expects the MedTech market to grow by 5.7% until 2029, when the global market size will reach $670 billion.
There are three major MedTech markets: America, Europe, and Asia-Pacific. The top five countries account for approximately 60% of the global market. The U.S. market is the largest in the world, with nearly 36% of the global market, followed by China, Germany, and Japan, with a share of between 6% and 7.5% each. The UK market closes the five largest markets with a 3.7% share, while the Spanish market is far behind, with a 1.7% share of the global market.Focusing on the Spanish MedTech sector, it is worth highlighting three aspects that characterise it:
- The first of these is its significantly deficit trade balance, with a volume of imports that doubles exports and, consequently, with a high dependence on foreign markets.
- The second is that the public health system in Spain constitutes approximately 80% of the sector’s activity and finances a significant part of the associated expenses. On the other hand, the private health sector represents around 20%, although a progressive increase in this proportion is being observed.
- And the third is the great fragmentation of the sector, in which the average turnover amounts to 11.6 million euros and in which 76% of companies obtain revenues of less than 5 million euros (more than 85% of companies invoice less than 15 million euros), which limits the capacity for investment and innovation. Only 4% of the companies in the sector have a turnover of more than 50 million euros, accounting for 61% of the sector’s turnover.
The size is closely related to the profitability of companies in this sector. Although the average profitability of the sector is very interesting, the average EBITDA is close to 12%, as it is a sector with significant economies of scale, there is a notable disparity in the profitability of companies according to their size: companies with sales of less than 15 million euros obtain an average EBITDA between 9% and 10% while companies with a turnover of more than 15 million euros obtain higher EBITDAs to 13% (14% for those with a turnover of more than 50 million euros).
Therefore, gaining dimension is essential to achieve economies of scale that allow absorbing the costs related to the innovation required for the development of new products, for the opening of new markets, access to new technologies and to comply with increasingly strict regulations.
In this market context, the MedTech sector is in an active period of mergers and acquisitions (M&A) driven by the search for synergies, portfolio expansion and access to innovative technologies. In this regard, it should be noted that the number of M&A transactions globally peaked in 2021 (1,511 deals), returning to pre-pandemic levels in 2022 and 2023. While M&A activity in the middle market remained strong in 2022 and 2023, mega-deals (M&A between large multinational companies) disappeared from the scene pending lower rates and a more conducive macro and stock market environment. In this sense, large multinationals focused on strategic operations and deconsolidation through divestment in non-strategic assets, acquired by medium-sized and private equity companies.
A growing propensity for cross-border and cross-continent deals has also been observed, since, in addition to achieving expansion objectives, these operations make it possible to overcome regulatory differences between different countries. In fact, the United States and the United Kingdom are the most prolific buyers in Europe, accounting for approximately 30% of acquisitions. Companies in China and Japan are also showing more and more appetite for operations in the global market.
To name a few transactions of companies in the mid-segment, the American company Enovis acquired the Italian Lima Corporate in order to expand geographically and strengthen its position in extremity surgery technology and capabilities in 3D implant printing or the acquisition of the Israeli Cartiheal, a specialist in cartilage regeneration technology, by the British Smith+Nephew.
There are also numerous private equity funds in the middle segment that are leading transnational and consolidation transactions such as DHG – Archimed or Montagu, to name just two of them.
In Spain, M&A activity in the MedTech sector has doubled post-pandemic, reaching the peak of transactions in 2022 and 2023 (47 and 45, respectively) compared to 19 in 2021. Transactions in the sector are being led by:
- Local companies, which represent 54% of transactions. This is the case of Vegal Group, which acquires Sivsa MeQ, or Palex, which is consolidating distribution companies with the acquisition of numerous companies, including Wacrees and Werkstatte Ibérica.
- Foreign companies (46%) that enter the local market, such as the American Hamilton Thorne, which acquired Microptic, expanding the sales platform and incorporating applied artificial intelligence technology and computer-aided semen analysis, or the Italian Amplifon, a leader in the hearing retail market, which acquired Gaes, which in turn continues to acquire companies such as OirT or Salesa in a clear movement of concentration sectorial.
- Financial investors who have burst onto the MedTech market seduced by the growth of the industry and the significant challenges and opportunities: 71% of the M&A transactions that have taken place in the sector in the period 2021 – 2023 have been led directly by financial investors or indirectly through companies owned by this type of investor. Companies in the sector have shown interest in partnering with these investors as they offer financial strength to address industry challenges and have experience in transforming businesses during technological revolutions and entering new markets. This is the case of Palex, currently owned by Apax and Fremann after the departure of Apheon and Corpfin, or the takeover of Abe’s stake in Ceranium.
- Spanish companies are also undertaking acquisition processes beyond our borders, as is the case of Cardiva with the purchase of the Italian IQ Medical and more recently of the Portuguese Overpharma, or Werfen which acquired the Hungarian Omixon specialized in sequencing in the diagnosis of transplants or the numerous acquisitions of Palex in Europe.
“In the MedTech sector, there is a considerable disparity in the profitability of companies according to their size, as this is a critical factor in absorbing the growing costs linked to increasingly strict regulation, investments in new product development, markets and marketing, as well as the emergence of digitalization and sustainability. In this context, we have observed significant differences in the valuation of transactions according to their size: those above €100 million reach a multiple of 20.9 times EBITDA, while those below this figure stand at 11.4 times EBITDA. This disparity represents an opportunity for investors interested in buy-and-build strategies as they can acquire smaller companies at low multiples, foster their growth through acquisitions also at low multiples and, once they have reached a considerable size, sell them at high multiples”
Fernando Cabos, Partner at ALBIA
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