Is the medtech industry healthy? A report titled, Pulse of the Industry Medical Technology Report 2022, shows that the industry is healthy – but faces a host of new and emerging challenges.
One of the biggest factors in the study is the reduced appetite for M&A from the medtech industry. The report points out there has been a 13% drop in the number of deals signed in the 12-months ending June 30, 2022 – despite M&A spending being up 24%.
“The first half of July to December of 2021 was a pretty active M&A sector, but really over the last six months the M&A space has really paused for lack of a better word,” John Babbit, a Life Science Partner at EY said during a call with the media last month. “We’ve seen a lot of those private companies defer sale processes, raise additional venture capital and really pin their sights on 2023.”
Instead of traditional acquisition deals, many companies have moved toward spinning off highly performing business units. The philosophy behind this move is to get smaller to get bigger. In fact, a few days after EY released the report, Medtronic said it was spinning off its patient monitoring and respiratory interventions businesses into a new company.
The Dublin-based company wasn’t the only one to announce a spin-off in 2022. 3M said in July that it was spinning off its healthcare unit into a publicly traded business. The healthcare spin-off is expected to be completed by the end of 2023 and will be a $9 billion company.
“I would say if anything, things have accelerated [when discussing spin-offs],” Babbit told MD+DI during a media call discussing the report. “I think we’ll see a few more. Right now, there is a general appetite to fund medtech even in a time of recession. In the medtech sector, no one has been immune to this particular down draft and fear of recession.”
The financing landscape has changed, too. The report noted Innovation capital (i.e., the capital raised by companies with less than $500 million in revenue) fell 35%, or nearly $10 billion, in the 12-month period ending 30 June 2022. In particular, the first six months of 2022 saw a rapid decline in the MedTech IPO market. With SPAC deals significantly slowing, and the largest venture capital investments going to late-stage financing rounds, smaller medtech’s access to the public markets looks far more constrained in 2022.
“Overall financings were down upward of 30% from the June year ending in 2022 to the June year of 2021,” Babbit said. “That’s not the complete story. While we have seen most of the public financings turn off over the last six months -whether those are IPOs or SPACs, even secondary filings of public companies, we have seen the continued resilience in the venture for private capital.”
Special Purpose Acquisition Corporation mergers were all the rage in 2021. However, the trend went on a steep decline at the beginning of 2022 and many companies announced backing out of SPACs, citing unfavorable market conditions.
There have been some SPACs this year. In June, Human Longevity, a genome company, said it had signed a non-binding letter of intent with Freedom Acquisition 1 Corporation for a proposed business combination.
The trend for SPACs was so erratic that MD+DI published a report titled “Where Are They Now: Updates on 7 SPAC Mergers.”