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Deal-Making in Medical Technology Sector Surpasses 2009 Level

The value of mergers and acquisitions of medical technology companies in the first half of 2010 surpassed the total for all of 2009, driven by buyers’ taste for bigger deals of established companies, a report found.

Eighty-nine deals with a value of $16.9 billion were struck in the first half of this year in the U.S. and Europe, compared with 172 transactions worth $15.7 billion in 2009, according to an Ernst & Young LLP report released today. The 2010 totals exclude Swiss drugmaker Novartis AG’s proposed $28.3 billion offer to purchase Nestle SA’s majority stake in Alcon Inc., the eye-care company, Ernst & Young said.

Deals should remain brisk in 2010’s second half, as shown by St. Jude Medical Inc.’s proposed $1.08 billion acquisition of AGA Medical Holdings Inc., announced yesterday, said John Babbitt, head of Ernst & Young’s medical technology practice in the Americas, in a telephone interview. Activity in 2010 may approach $30 billion, about double the value of 2009 deals, which was the lowest since 2002, the report said.

“We’ll probably see more deals of $1.5 billion and below,” said Les Funtleyder, a health-care portfolio manager at Miller Tabak & Co. in New York. Mergers and acquisitions will likely increase in the fourth quarter of this year, as companies try to get transactions completed by year’s end, he said.

There have been 240 deals in the last five years in the medical-device sector, with an average deal value of $369.5 million and an average premium of 41.8 percent, according to Bloomberg data. The biggest deal was Boston Scientific’s 2005 acquisition of Guidant Corp. for $25.2 billion.

Merck KGaA Deal

Much of the gain in 2010’s deal volume came from one transaction, Darmstadt, Germany-based Merck KGaA’s $6.8-billion acquisition in July of Millipore Corp., the supplier of biotechnology equipment based in Billerica, Massachusetts.

“We’re seeing fewer but larger deals,” said Babbitt, of the accounting firm, noting that investment has shifted away from early-stage companies.

“The real interest has been in buying mid-tier medical technology companies that have attractive valuations,” Babbitt said. “They are folding them into leaner and more efficient structures that the larger medical technology companies now have.”

Besides Merck, some of the bigger deals in 2010 have been Dublin-based Covidien Plc’s $2.5 billion acquisition of heart- device maker ev3 Inc. in July, and Minneapolis-based Medtronic Inc.’s $350-million acquisition of Invatec, an Italian maker of heart devices, in April.

“I don’t think we’re going to see a Guidant-size deal,” Funtleyder said, referring to the rest of this year.

The report defines the medical technology sector as companies including those that make medical devices, imaging technology such as magnetic-resonance imaging scanners, non- imaging diagnostic gear and equipment used in scientific research.

To contact the reporter on this story: David Olmos in San Francisco at dolmos@bloomberg.net

To contact the editor responsible for this story: Reg Gale at Rgale5@bloomberg.net

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