The medical device industry has evolved over the last several decades from a high-flying, fast-growing market to a slower-growing, maturing one, driven by a slowdown in volumes and significant increase in pricing pressure. As a result, the industry is in the midst of accelerating consolidation. Over the last 15 years, the industry has increased in concentration in most segments of the market.
As market pressures have increased, the pace of consolidation has accelerated with deals such as Medtronic-Covidien, Zimmer-Biomet, J&J-Synthes, and Thermo Fisher-Life Technologies, which are examples of deals that have created (or will create) players of unprecedented scale in their relevant market segments.
To assess the impact and performance of M&A in medical devices, we analyzed 396 M&A transactions over a 15-year period (1999 to 2014) and categorized top acquirers by M&A program. We also looked in more detail at the performance of 22 large deals – those that were larger than USD 750 million and where the target company represented at least 15 percent of the acquirer’s market capitalization. To analyze shareholder returns, we calculated excess shareholder returns above the industry index of the acquiring company over a time series of two to five years after the announcement date. We also evaluated economic profit growth, margin evolution, and trading multiples for acquirers over time.
Successful large, transformative deals are rare in medical devices. When we look back and compare medical device deal performance to our previous analysis on pharmaceutical megamergers, there is a stark contrast in economic performance in large deals for the two sectors. Pharmaceutical acquirers have managed to deliver approximately three times the margin improvement and multiple billions of dollars more in economic profit than medical device acquirers.