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Top M&A targets in devices and diagnostics

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Mark Hollmer Damian Garde

By Mark Hollmer and Damian Garde

We are hitting the closing days of 2012 without larger-scale medical device or diagnostic industry M&A to crow about. But observers believe that a lot of elements are now in place to boost that activity substantially for 2013.

Sure, Boston Scientific ($BSX) is among the more active medical device operations that has snatched up a number of companies with promising technologies this year. And acquisitions have continued throughout 2012, notably Hologic's ($HOLX) $3.8 billion buyout of Gen-Probe ($GPRO) that closed in August. But as Reuters noted in September, dealmaking in the medical technology sector hit a three-year low as of the end of the summer.

It's not as if deals aren't happening. They are. But a larger number in the medical device space have involved smaller or private companies, observes Matt Dolan, a senior research analyst for medical technology at Roth Capital Partners. What gummed up the M&A machinery to slow it down? Dolan blames uncertainty created by the 2012 U.S. election, and also confusion over the Affordable Care Act, which could have faced repeal if Mitt Romney was set to become our next president. Now that President Obama is firmly in place, healthcare reform can proceed. And the new healthcare reality the law creates should lead to a resumption of M&A at more robust levels, Dolan and others predict.

Part of the reason, he notes, is that the Affordable Care Act and related provisions such as the device tax are likely to place a number of new cost pressures on the industry. This, in turn, Dolan believes, will lead to more mergers to create economies of scale in areas such as orthopedic devices, where the sector faces pricing pressure because of declining procedure volumes, hospital purchasing changes and reimbursement declines.

"We think scale is something that is going to be required in the medical technology space," Dolan told FierceMedicalDevices.

Meanwhile, Dolan predicts that device and medical technology companies will continue to shop for smaller, private upstarts--"visionary-type deals," he calls them--where the acquired party offers promising technology in up-and-coming areas such as renal denervation and neurostimulation.

We have have compiled a list of some of the major acquisition prospects out there (numbered below), public companies as well as promising private upstarts developing technology that might give a larger rival a major edge. We based our selection process on outside analyst commentary, educated industry speculation and also comments from some of the companies themselves. Enjoy. And while you're at it, you should check out the latest M&A speculation in the biopharma world. -- Mark Hollmer (email | Twitter) and Damian Garde (Twitter | email)