Healthcare remains one of the nation’s most vibrant and vigorous sectors, creating some excellent opportunities for mergers and acquisition (M&A) activities.
National healthcare spending is projected to top $2.5 trillion this year alone and consume 17% of the nation’s spending. Some projections estimate these levels of spending will double in the next decade.
M&A activity across all industries declined in 2009 in comparison with 2008 transactions. Healthcare, however, continued to register significant M&A activity that boosted its ranking among leading industries. According to data collected by Dealogic & Robert W. Baird & Co., when measured by total transactions, healthcare companies advanced from ranking as the 3rd most active sector in 2008 to the 2nd most active trailing only technology.
M&A activity in the healthcare marketplace is expected to remain strong throughout this year. Current growth opportunities and consistency of revenue and earnings generated by the healthcare industry should continue to build interest between buyers and sellers and motivate more transactions.
A sector of the healthcare industry that is thriving is medical device manufacturing. According to Capital IQ the total number of M&A transactions for this subgroup increased in 2009 to 134 closings as compared to only 112 in 2008, while all other areas of healthcare stayed level. It may be advantageous for owners of these businesses to consider selling, but only if they pursue the development of devices that demonstrate a “must have” product element. Devices that reduce the time required for a medical procedure or reduce the risk of a procedure will demonstrate the most value to the buyer.
While the future of medical device manufacturing seems to be strong, the following concerns were voiced at a recent gathering of industry leaders and regulators from across the country who joined statewide manufacturing representatives attending the annual Florida Medical Devices Symposium. Changes that could impact – and possibly limit – medical manufacturing growth include:
- A new federal excise tax on the sale of all devices ranging from surgical instruments to bedpans
- Increased Congressional oversight focused on the FDA approval process and safety issues
- Congressional concerns over potential conflicts or inappropriate relationships between manufacturers and physicians
- Threats to the security of intellectual property pertaining to patent reform
- Continued concerns about anti-competitive aspects of Group Purchasing Organizations
Despite these concerns, the medical device manufacturing sector continues to flourish. Unlike other manufacturers, the nation’s medical device manufacturing industry is a net exporter. The chart below graphically demonstrates the historically growth this industry has enjoyed and its potential for on-going success
The dynamic increases of the medical device manufacturing sector have been driven by many factors including:
- Increased average age of a growing population
- Technology innovations
- Consumer demand for increased efficiency in the delivery of healthcare
- Government expenditures
Devices that improve patient care by reducing recovery costs and time, or improve morbidity and mortality outcomes, also will increase the value of manufacturing operations. Consideration should be given to devices that serve large markets and unmet medical needs because these are also attributes private equity and strategic buyers look for in acquisition opportunities. Time spent developing business plans and engaging experts early in that planning process will allow for increased growth and the opportunity to maximize value in your medical device manufacturing operation regardless of the obstacles of new regulations or legislation.