Report: M&A Activity In European Medtech Sector On The Upswing

A recent market research report reveals that mergers and acquisitions (M&As) among medical device companies in Europe are increasing. The main drivers for the increased M&A activity in the region are pricing pressures, decreased reimbursements, and cost considerations.

According to the new report from market research firm Frost & Sullivan, private equity investors are moving away from investing in European medical device companies because of pricing pressures and uncertainty of investment returns. Likewise, venture capitalists are becoming wary of the sector because of a tightening regulatory environment, pricing pressures, and fewer exit options. More investors now prefer late-stage startups rather than early-stage startups, whose failure rates have risen. That leaves M&As as the most viable investment strategy.

“Analysis of data shows that deals in the last quarter are continuing to decrease, implying that big investments that usually happen in the last quarter are slowly phasing out,” said Frost & Sullivan senior financial analyst Saneesh Edacherian, in a statement. “Mergers and acquisitions (M&As) will be the primary exit options for companies in the European medical device sector.” 

The Frost and Sullivan report states that pricing pressures and diminishing returns on in-house R&D are forcing European device manufacturers to look for outside partners to maintain or bolster their pipeline. Device manufacturers based in the United States, as well as pharmaceutical companies, are likely to become the most active partners for M&A deals.

“While medical device companies acquire most integration deals, pharmaceutical and biotech firms are the second leading buyers of medical device companies,” Edacherian said. “This trend is primarily a result of reducing margins, regulatory uncertainty, and depleting pipelines that force top pharmaceutical enterprises to look for diversification in the European market.”

Besides the aforementioned reasons, lower corporate taxes in Europe have attracted U.S. companies to engage in M&As with European companies. So-called tax inversions have been made by companies like Medtronic, who recently merged with Ireland-based Covidien. Medtronic also acquired Dutch firm Sapiens Steering Brain Stimulation (SBS) last year.

M&A deals between large manufacturers may hog the limelight, but startups are also critical for the growth of the European medical device sector. As Serge Bernasconi, CEO of MedTech Europe, European Diagnostic Manufacturers Association (EDMA), and Eucomed, pointed out in a recent article, the medtech industry in Europe is made up of 95% small and midsize enterprises (SMEs). He called on the bigger device companies to support the smaller players.

“If we want the innovation successes of past and present to continue well into the future, it is critical that the bigger medtech players, and the financial and investment ecosystem keep taking the pulse of European medtech startups,” said Bernansconi.

Image credit: "European Commission flags" by Sébastien Bertrand. Licensed under CC BY 2.0 via Wikimedia Commons.