2010: The Year In Med-Tech Deals

By Stephen D. Simpson, CFA | December 29, 2010 AAA

Medical technology has always been a sector with a high level of M&A activity in any given year. Large companies are always on the lookout for technologies and assets that can boost their growth rate, while a plethora of single-product/single-market outfits hope for the boon of a big-time payday. That said, 2010 was a bit of a disappointment in terms of deal activity. Though there certainly were notable deals throughout the year, the pace was slower than what most people predicted in late 2009. Perhaps, then, that means that 2011 will be an above-average year as economic recovery puts some life back into this lagging sector. (For more, see Where The M&A Action Is, And What's Next.)

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The Gold Star Goes to Covidien
Covidien (NYSE:COV) was certainly among the most active players this year. Covidien started off by getting rid of most of its respiratory care business and then turning around and buying peripheral and neurovascular specialist ev3 for $2.6 billion. Shortly thereafter, Covidien decided to expand its monitoring business by acquiring Somanetics in a $300 million cash deal. Time will tell whether the company can leverage these deals into sustainably higher growth rates, but it seemed to help Covidien's stock do a little better on a relative basis. (For more, see Covidien - Better Than People Seem To Think.)

St. Jude Quietly Following the Medtronic Model
St. Jude (NYSE:STJ) still seems to carry a bad reputation from the days when it was the "other" company competing with Medtronic (NYSE:MDT) and Boston Scientific's (NYSE: BSX) Guidant in the pacemaker and ICD business. Nevertheless, St. Jude has quietly been building an interesting collection of businesses, largely through M&A. This year, St. Jude shelled out more than $1 billion to acquire AGA Medical and its cardiac repair business - a logical outgrowth of a company with interests in heart surgery, valve replacement, ablation, and other cardiology niches.

Medtronic Still Being Medtronic
Of course, it seems like there can never be a year of med-tech M&A that does not involve Medtronic. Curiously, though, the company took a different strategy to its M&A in 2010 - buying two small companies (Osteotech and ATS Medical) that had been public for quite a while and never really thrived despite having what was once thought of as solid technology. To a large extent, these may be "back-filling" acquisitions that fill in gaps in Medtronic's product line-up, but they are not the sort of bold initiatives that Medtronic is known for or that many investors expect. (For more, see A Checklist For Successful Medical Technology Investment.)

Boston Scientific Starts to Clean House
Boston Scientific has long tried to do many different things well and has largely failed as a public company as a result. 2010 may mark the start of a new trend, however, as the company began to shed some of its business units. The most notable move for BSX was the decision to sell its neurovascular business to Stryker (NYSE:SYK) for more than $1.4 billion. While there were rampant rumors of a deal between the two companies, most people thought Stryker would be buying the neurostimulation business - a unit that the company just recently took off the auction block.

GE Stretches Its Legs
General Electric (NYSE:GE) pricked up some investors' ears relatively late in the year when company executives began openly talking about putting some potentially large sums of capital to work in the health care space. So far, all of that talk has led to just one deal - the acquisition of oncology diagnostics specialist Clarient. It would hardly be surprising, though, to see GE get more active in the coming year, perhaps involving itself in the Beckman Coulter (NYSE:BEC) sale or the acquisition of a major life sciences or radiology company. (For related reading, see 5 Healthcare IT Stocks To Know.)

Setting the Stage for 2011
With Thermo Fisher (NYSE:TMO) announcing a deal for Dionex (Nasdaq:DNEX) late in the year, it is a good reminder that 2011 could be an active year for more life sciences M&A - with companies like Bruker (Nasdaq:BRKR), Luminex (Nasdaq:LMNX) and Caliper Life Sciences (Nasdaq:CALP) all looking like reasonable targets. Likewise, medical devices could certainly see activity in areas like orthobiologics, radiology, cardiology and diagnostics/imaging.

The more things change in med-tech, the more they stay the same. Big companies still want to find new avenues of growth and better sales leverage, and acquiring a smaller player is often cheaper than navigating the hazards of R&D, patents and the FDA. Likewise, small companies operate in the shadows of these giants - using novel approaches to treat disease and grow revenue, while often hoping to attract a premium buyout bid. With that in mind, and a generally more favorable operating environment, 2011 should be a busy year. (For more, see A Checklist For Successful Medical Technology Investment.)

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