M&A trend lines in tech-enabled medical devices

May 10, 2019
By: David Levine

2018 was an active year for mergers and acquisitions in the technology-enabled medical device sector, and 2019 is off to a good start.

There were 50 announced acquisitions of tech-enabled device companies in 2018. Notable areas included clinical trial management, device software optimization and IoT sensor technologies.

Private equity firms were active in the sector in 2018 and firms such as GTCR, Advent and Genstar acquired companies in the battery, RF systems and asset management sectors.

Resmed made two acquisitions last year. One acquisition in the electronic health record space (MatrixCare) and one in the inhaler sensor and software space (Propeller Health). They shelled out one billion dollars combined for those acquisitions, highlighting their desire to move further into the COPD space with Propeller Health, as well as continuing to build out their EHR business with the MatrixCare add-on.

Another interesting trend are the carve-outs happening with the large strategic players. Private equity is stepping to the plate as large multinationals shed the excess weight that may not be core to their business. Silver Lake Partners picked up ServiceMax (GE) and Platinum Equity paid $1.2B for the glucose monitoring systems and applications from Johnson & Johnson, LifeScan. This LifeScan business unit had more than three thousand employees and five million individual customers.

Royal Phillips was also active last year as they acquired EPD Solutions. EPD is a leader in the cardiac imaging and navigation systems for patients with heart rhythm disorders. Paying almost $300M in cash, this deal also had an earnout component of an additional 245 million. EDP’s innovation is their Kodex-EPD cardiac mapping and navigation system to create high-definition images of a patient’s cardiac structures.

2019 is off to a solid start on the technology-enabled medical device M&A front, as there were two transactions in January, Qualcomm shed their Qualcomm Life business in February, and already three transactions occurred through the first half of March. Interestingly enough, Zoll Medical has already acquired two companies in 2019, acquiring Payor Logic in January and Golden Hour Data Systems in March. Zoll is continuing the march that we are seeing from medical device companies acquiring revenue cycle management and EHR companies.

In addition to Zoll, Resmed, Deloitte, Johnson & Johnson and Siemens also made device-related software acquisitions in the last few years. The trend of medical device companies acquiring software companies is expected to continue, as medical devices are important data gathering points for patient information and caregiver workflow monitoring.

Securing medical devices will also be an area to watch. The Food and Drug Administration issued new guidance in 2018 to assist device manufacturers with their medical device design and regulatory framework for submitting premarket submissions. As any device could become a malware entry point, manufacturers, hospitals and other stakeholders will need to continue to integrate security platforms into their designs.

Research shows that cyberattacks are on the rise and the healthcare sector has been a common target. Researchers in Israel were able to create a computer virus capable of impacting CT scans and MR scans by adding tumors.

Protecting these assets and institutions has been a top priority, and M&A in the cybersecurity sector has been moving at a feverish pace. Blackberry acquired Cylance last year for 1.4 billion dollars (a 10.8X revenue multiple), and Cylance’s healthcare business uses artificial intelligence to assist hospital IT departments to protect their infrastructure and perimeters.

With the healthcare sector a common ransomware target, it is expected that healthcare-related cybersecurity M&A will increase in 2019 as leading security companies in the sector continue to move into healthcare with vertical solutions. Moreover, medical device and diagnostic companies need to consider their cybersecurity strategy and potentially acquire security companies themselves to gain an edge or even stay relevant. Relying on third parties to secure EHRs, medical devices or diagnostic equipment may no longer be sufficient.

Should Phillips or Siemens acquire a security company in the software-defined perimeter space to enable real-time visibility of security threats of all of their assets, whether or not they are behind a firewall? Will hospitals require their vendors to have their own security protocols integrated directly into their products? Or will a few dominant players emerge with horizontal solutions that are designed to protect all of the software and connected devices in a clinical setting?

David Levine
One thing is for sure, whether it is cybersecurity, IoT or clinical trial management, the pace of M&A is expected to continue in the healthcare sector in 2019.

About the author: David Levine has been in the life sciences and technology sectors for over twenty-five years. He is currently Senior Vice President at the Corum Group and is active in mergers and acquisitions for healthcare technology, pharmacy technology and software companies.