Pandemic Creates Conditions for Buying Bonanza—2021 Year in Review

The pundits were right.

They watched medtech profits tank last year during COVID-19’s initial assault, then gradually rebound in the second half. They knew of the changes ahead for U.S. tax laws, and the likely implications for publicly-traded companies. They observed the steady buildup of liquidity amongst major players throughout 2020. And they sensed the pent-up demand that had been bubbling up like magma within the industry during the pandemic.

The pundits could draw only one conclusion from their observances: a strong rebound in M&A activity this year, fueled by a record high of nearly $500 billion in financial firepower.

“There’s a lot of liquidity in the market,” John Babbitt, EY’s MedTech leader for the Americas, said in early January. “There are only so many levers that CEOs and CFOs can pull to enhance growth coming out of COVID. We do think, from what we’re hearing, that M&A is going to be one of the levers that they’re going to be relatively aggressive on.”

Indeed, medtech companies aggressively yanked that lever in 2021, generating a bumper crop of deals that are likely to change the face of the industry. The number of transactions surpassed 2020’s total by mid-year, with buyouts occurring in virtually every industry sector.

Orthopedic firms were considerably more passive with that lever, however. Deal size and scale were relatively small compared to the overall medtech industry: values ranged from $50 million to $518 million, with most transaction terms remaining undisclosed. Interestingly, small and medium-sized companies dominated deal-making this year, compensating for the lack of participation from the typically spendthrift multinationals.

Nevertheless, the industry’s largest implant manufacturers were not completely MIA from 2021 M&A. Bioventus, DePuy Synthes Inc., DJO, NuVasive Inc., and Stryker Corp. freed up some cash for investment purposes to expand their existing product lines or delve into new markets.

DePuy Synthes, for example, through its Synthes GMBH subsidiary, augmented its robotics capabilities through the $79.5 million purchase of Trendlines portfolio firm OrthoSpin Ltd. in early November. OrthoSpin’s robotic system for exterior fixation therapies received U.S. Food and Drug Administration clearance in January; the automated, digitally-enabled AutoStrut G2 System is used in setting complex fractures, correcting limb deformities, and bone lengthening procedures. The product converts the traditional manual external fixation system via an automatic process that complies with a treatment plan created by external fixation software. 

Similarly, NuVasive expanded its cervical spine technology portfolio with its $150 million buyout of Simplify Medical. “The acquisition…advances our long-term growth strategy by both expanding, and further distinguishing, our portfolio with industry-leading innovation,” CEO J. Christopher Barry said upon disclosing the deal.

DJO achieved the same goals with its bids for MedShape Inc. and Trilliant Surgical, and its strategic investment in Insight Medical Systems. The latter venture gives DJO access to the fast-growing augmented reality market (expected to top $16.2 billion by 2027), while the others provide the company entry into the foot/ankle sector. DJO’s reconstruction business also received a boost from Colfax Corporation’s $285 million purchase of Mathys AG Bettlach.

Stryker, meanwhile, bolstered its sensor technology aptitude with its acquisition of OrthoSensor, whose VERASENSE intraoperative sensor has been used with  the company’s Triathlon knee since 2011. In addition, the firm sharpened its blood loss monitoring skills by purchasing Gauss Surgical, maker of an artificial intelligence-powered platform for monitoring a patient’s blood loss during surgery as well as following Cesarean sections and childbirth. Gauss Surgical’s Triton system uses a computer vision app and iPhone to visually measure blood loss by capturing images of sponges, towels, and fluid canisters held up to the camera, along with automatically calculating the blood volume of weighted items.

The Gauss acquisition quickly followed Stryker’s mid-August launch of its SurgiCount+ sponge-counting workstation, designed to track blood-stopping equipment used during OR procedures.

“In today’s strong market, we continue to see a significant amount of activity with both our Industry and Private Equity clients,” explained Craig Ackerman, a principal at the Alexander Group and leader of the firm’s Medical Device practice. “Many of the deals are tuck-in while others represent significant strategic investments. Medtech companies weathered the pandemic much better than expected and have money to invest in acquisitions. While some companies delayed their plans in 2020, most of today’s deals are being driven by strategic priorities.”

That drive was particularly strong for Bioventus Inc., the year’s top shopper. The Durham, N.C.-based firm completed four deals in 2021, welcoming Bioness Inc., CartiHeal Ltd., and Misonix Inc. into the fold, and investing in Trice Medical Inc. The $110 million Bioness deal adds peripheral nerve stimulation technology and an advanced rehabilitation business to Bioventus’ product lineup, while CartiHeal expands the company’s ability to treat cartilage and osteochondral defects in patients with severe osteoarthritis (via CartiHeal’s biocompatible, coral-based, off-the-shelf implant, Agili-C).

Misonix’s wound care portfolio (secured in the year’s largest deal, $518 million) will integrate with Bioventus’ foot/ankle offerings, and its surgical devices will augment its purchaser’s orthopedic tool lineup. Misonix’s Nexus ultrasonic system combines the BoneScalpel, SonicOne, and SonaStar tools in one platform for precision bone cutting, wound cleaning, and tissue removal, respectively.

The Trice Medical investment enhances Bioventus’ minimally invasive technologies for sports medicine and orthopedic surgeries. The deal gave Bioventus exclusive sales and distribution rights to Trice Medical’s products outside the United States, as well as the opportunity to integrate Trice Medical’s technologies into its own peripheral nerve stimulation offerings, including StimRouter and TalisMann.

Tuck-in deals were popular this year among the megacorps’ smaller rivals too. Neo Medical expanded its U.S. and German footprints by merging with TriOs Medical; Mediliant continued its contract manufacturing quest by purchasing CTE Solutions; Paragon 28 added a patient-specific total talus replacement solution to its portfolio by acquiring Additive Orthopaedics; and SeaSpine Holdings Corporation augmented its implants, instruments, and orthobiologics portfolio with its $110 million deal for 7D Surgical Inc.

“The forced ‘pause’ and extended disruption [of COVID-19] caused many leaders to rethink their commercial models and organizational capabilities,” Ackerman noted. “As a result, healthcare leaders looked to acquire new capabilities needed to succeed in the updated ecosystem (e.g., technology, digital, etc.). Similar to the home renovation boom caused by millions of Americans working from home, companies took a similar inventory of their organizations and decided that they could use a bit of ‘fixing up’ or a nice new addition.”

Some of those fixes, however, required a partial product portfolio realignment: Ventrun LLC sold its Universal Splint product line to Safeguard Medical, while Sunstar unloaded its Degradable Solutions division on Collagen Matrix Inc., and Stryker handed off its T/Pump dossier to C2Dx Inc.

Anatomage, Colfax, and Zimmer Biomet Holdings Inc., on the other hand, beget new offspring. Anatomage separated its medical and dental businesses, creating a wholly-owned subsidiary for the latter called Osteoid; Colfax turned its industrial and medical device businesses into two separate companies; and Zimmer Biomet spun off its Spine and Dental divisions.

Creating an independent spine and dental business will allow both Zimmer Biomet and the new entity (NewCo) to better focus on efficiency and leadership in their respective spaces, executives said. The spinoff is expected to be completed in mid-2022.

“The year in M&A has been incredibly frothy,” said Ben Dunn, managing director at Boston-based investment banking firm Covington Associates. “Deal activity and valuations are at highs compared to the recent past. There was a lot of pent-up demand on the buy side and sell side. You had buyers who needed to do deals or put money to work and strategics who had new things they wanted to address because of COVID, and one of the ways to do that was through acquisition. It was a perfect storm leading to robust M&A activity.”

Just the kind of storm the industry needed.

Let it rain. 

Read more: bit.ly/odt21yir04