A new survey released in the July/August MX Magazine indicates that deals in the lower mid market have continued, albeit at a slightly smaller scale than in 2007:
In the first quarter of 2007, 39 medical device deals were announced. By comparison, in the first quarter of 2008, 35 medical device deals were announced—a slight decrease. But what’s more telling is that the 39 deals of 2007 represented a transaction value of $15 billion, while the deals of 2008 are worth only $7 billion. So even though a substantial number of deals are still getting done, these figures suggest that a lot of the bigger, higher profile deals are not.
The article emphasizes that strategics are stepping in more so than before:
Strategic buyers have plenty of cash. In the past, strategic buyers were somewhat marginalized by the valuations put in place by some of the P/E players. But strategic buyers are generally cash-flow-positive businesses, and they’re aggressively looking around as much this year as last year.
The advantage to strategics is that they have cash in hand, but the disadvantage can be that they are much more focused on finding companies that have positive cash flow and are in a position to be acquired. Both strategics and private equity groups now seem to be weighing company fundamentals more heavily than general industry trends:
When I look at my portfolio of companies, the real determination is whether a particular company is at a right stage to be acquired. That decision is more likely to be made on the basis of anecdotal information, or the company’s history, than as a result of sector trend analysis.
Strong fundamentals have always been the cornerstone to successful deals, but given the market situation, it is only natural that both strategic buyers and private equity groups are evaluating risk in a different light. As to specific sub-industries in the medical device arena, there were some areas that were more active than others:
We have done or are actively working on a number of deals in the spine area, in ophthalmology, in treatments for diseases of the bowel, and in women’s health. These are all areas that continue to be very active in starting new companies, funding them, and selling them. We also continue to see a lot of things going on in the cardiovascular and related sectors, but perhaps fewer deals than five years ago.
This comment comports with the deal flow we have seen in our biotech and medical device mergers and acquisitions practice. Many of the companies we have assisted in obtaining financing have been in the above fields, so it makes sense that those sectors are seeing enhanced deal flows. The upside was that mid market deals should continue, regardless of the credit crunch and recent market conditions:
In the middle market, the M&A landscape is going to be as active as ever. With certain exceptions, that market is relatively immune from broader economic conditions… Multi-billion-dollar deals will continue, but I think there will be a private equity bias there. And there will still be a lot of activity in the middle market.
For more information about mid market deals in the medical device sector, visit Orion Capital Group at www.orioncg.com.
