Medical equipment deals briefing for Q2 2010
A summary of the report Medical Equipment Quarterly Deals Analysis M&A and Investments Trends — Q2 2010  by GlobalData
17 August 2010
Mergers and acquisitions (M&A) activity decreased in the medical equipment industry in the second quarter of 2010. M&As and asset transactions, which include change in ownership and control of companies or assets (GlobalData considers this value as not a new investment into the market), witnessed a huge decrease in deal value from $39.8 billion in Q1 2010 to $8.5 billion in Q2 2010.
Further, the number of deals also decreased from 110 deals in Q1 2010 to 78 deals in Q2 2010. The huge deal value in Q1 2010 was due to the landmark deal of Novartis’ agreement to acquire an additional 52% stake in Alcon for $28.1 billion.
In terms of the number of deals, the most active buyers were Essilor International with 14 M&A deals, followed by Covidien plc with eight M&A deals.
The average P/E (price earnings ratio) of acquired medical equipment companies, which reflects the willingness of investors to pay for a company’s earnings, decreased from 25 times in Q1 2010 to 10 times in Q2 2010, which signifies that companies are not anticipating short term growth prospec
The average deal value decreased from $738 million in Q1 2010 to $128 million in Q2 2010, and the median deal value also decreased to $32 million in Q2 2010 from $40 million in Q1 2010. The abnormal increase in the average deal value in Q1 2010 was due to Novartis and Merck’s separate acquisition deals worth $35.1 billion.
GlobalData expects that M&A activity will be on a rising trend as the demand for medical devices has the potential to go high with increasing ageing population. The slow stabilization of the economy will also lead to an increase in M&A activity in the coming years.
According to Bhaskar Vittal, Analyst at GlobalData, “M&A activity is likely to remain subdued for the rest of 2010 due to the economic uncertainties in some of the European economies and slow growth in the US. Availability of finance becomes difficult during economic uncertainty leading to low M&A activity. Also companies will be cautious in their approach to inorganic growth during these periods.”
New investments in medical equipment companies declined
Investments in medical equipment companies, including new investment through equity/debt offerings and financings by private equity/venture capital firms, reported a decrease in the investments from $18.2 billion in Q1 2010 to $13.3 billion in Q2 2010. However, the number of deals increased from 273 deals in Q1 2010 to 291 deals in Q2 2010. On a year-on-year basis, the number of deals and deal value increased by 25%, compared to the 233 deals worth $10.7 billion in Q2 2009.
Decreased financing through debt offerings
Debt offerings, including secondary offerings and private debt placements, witnessed a decrease in deal value with $7.4 billion raised in Q2 2010 compared to $12.9 billion in Q1 2010. Further, the number of debt offering deals also decreased from 22 deals in Q1 2010 to 18 deals in Q2 2010. On a year-on-year basis, the number of deals and deal value declined by 44% and 5% respectively in Q2 2010 compared to 32 deals worth $7.8 billion in Q2 2009.
Abbot Laboratories’ raising of $3 billion in three separate public offerings of notes and Covidien’s raising of $1.5 billion in three separate public offerings of senior notes were the major deals recorded in Q2 2010.
Global equity offerings, including Initial Public Offerings (IPO), secondary offerings, and Private Investment in Public Equities (PIPEs), registered an increase in the number of deals and deal value, reporting 85 deals worth $3.4 billion in Q2 2010, compared to 67 deals worth $1.3 billion in Q1 2010.
In the medical equipment industry, the in vitro diagnostics market historically attracts the most funding every quarter, accounting for 12 deals in Q2 2010. The IPO market gained momentum with nine IPO’s worth $1.9 billion in Q2 2010, compared to five deals worth $287 million in Q1 2010, the highlight being Trauson Holdings’ IPO of $669.4 million in Q2 2010.
New investment by venture financing firms increased slightly
Venture financing in the medical equipment industry witnessed a marginal increase in investments, reporting $1.5 billion in Q2 2010, compared to $1.3 billion in Q1 2010. The number of deals also increased from 166 deals in Q1 2010 to 171 deals in Q2 2010. Out of the total $1.5 billion, $594 million was provided to start-up companies; $377 million to growth stage companies; and $487 million was provided to later stage companies. This signifies a more positive short and long run return on investments expected by VC firms with a low risk appetite. The in-vitro diagnostics market garnered the most funding with $1.1 billion raised in 141 deals.
New Enterprise Associates topped the list of venture financing firms by participating in nine financing rounds with total investment of $953.4 million during Q3 2009 - Q2 2010.
The increase in the per capita health care expenditure in the developing economies such as China and India, and the regulatory/legislative framework, will provide more opportunities for medical device manufacturers to look to these developing markets to supplant their existing domestic and international sales.
Investments in North America decline marginally
The medical equipment industry in the North American region witnessed a decrease in the deal value with an increase in the number of deals, reporting 416 deals worth $13.7 billion in Q2 2010 compared to 364 deals worth $15.6 billion in Q1 2010. Further, the European region was still able to match the last quarter investment, despite the poor performance of public equity/debt market in May 2010 and June 2010. The region reported $2.3 billion in Q2 2010 compared to $2.4 billion in Q1 2010.
Further, Asia Pacific registered a huge increase in deal value from $812.3 million in Q1 2010 to $2.4 billion in Q2 2010, a staggering growth of 195% over Q1 2010. China has no regulations for governing medical devices, and many small clinics or hospitals, out of economic interest, are still using some instruments that are not providing the accurate diagnosis. GlobalData expects thatafter the new legislation regulation and the management there will be a huge opportunity for the elimination of old defective medical devices in the growing Chinese market.
According to Bhaskar Vittal, Analyst at GlobalData, “Investments in North America and Europe may not increase in the near term as emerging economies in Asia Pacific continue to attract new investments. Higher economic growth in countries such as China and India, supported by favorable demographics and changing regulatory environment is expected to attract increased investments in Asia Pacific.”
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Medical Equipment Quarterly Deals Analysis M&A and Investments Trends — Q2 2010.
The report by GlobalData is an essential source of data and trend analysis on the Mergers and Acquisitions (M&A) and financing in the medical equipment market.
The report provides detailed information on M&As, equity/debt offerings, private equity, venture financing and partnership transactions registered in the medical equipment industry in Q2 2010.
The report portrays detailed comparative data on the number of deals and their value in the last five quarters subdivided by deal types, segments, and geographies. Additionally, the report provides information on the top private equity, venture capital and advisory firms in the medical equipment industry.
Data presented in this report is derived from GlobalData’s proprietary in-house Medical eTrack deals database and primary and secondary research.