Investment in MedTech: A New Hope

Industry experts anticipate a fresh surge of investment interest in mergers and acquisitions (M&A), now that major corporations have effectively navigated a series of spinoffs.

Lay of the land of investment

Investment in medical technology startups experienced a decline throughout 2022, and this downward trajectory in transaction value persisted into the initial quarter of 2023. However, the subsequent quarter hinted at the potential emergence of a recovery. Between the first and second quarters, deal value saw an increase from $2.5 billion to $2.8 billion, accompanied by a rise in the number of deals from 183 to 189.

While these figures remain notably below the peak reached during the second quarter of 2021, when venture capital funds channelled $5.9 billion into over 200 deals, analysts assert that this slight resurgence signifies a return to a more standard level of funding. The gradual upturn is expected to sustain its course throughout the year.

“We hold the view that MedTech funding bottomed out in Q1 2023, and we anticipate overall deal value to inch upwards over the rest of the year. Still, funding could come in moderately below 2022’s levels, which were already down significantly from the highs of $19.7 billion of total funding — and over 1,000 VC deals — seen in 2021,” the analysts wrote.

One obstacle facing investors is the limited avenues for selling their interests in MedTech startups at a profit. Notably, no MedTech companies pursued initial public offerings (IPOs) in the initial five months of 2023. Even when Xishan Science & Technology did go public in June, it did so through listing in China. According to PitchBook analysts, the U.S. IPO landscape has been predominantly closed off to healthcare companies throughout the year.

As an alternative exit route, M&A holds promise for investors. Yet, recent quarters have seen a notably subdued volume of deals due to economic uncertainties and a prioritisation of cost-saving over growth-oriented capital allocation, the analysts remarked. Although there has been recent activity, with Quest Diagnostics and Medtronic striking deals in the hundreds of millions of dollars, the overall outlook remains nuanced.

“It is likely that M&A could see greater momentum as incumbents use accumulated capital for growth plans. Still, antitrust remains a headwind for MedTech M&A seeing a significant uptick, and the sector has recently seen two major deals scuttled due to regulatory concerns,” the analysts wrote. The two deals killed off by antitrust issues affected Boston Scientific and CooperCompanies.

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