Impending federal excise taxes, downward pricing pressure and declining volumes of big-ticket procedures constitute a triple threat that will drive the medical device industry to consolidate, according to a PricewaterhouseCoopers report.
The total value of health care deals over the past 12 months rose 40 percent, according to the consulting giant’s “U.S. Mid-Year M&A Outlook.” That trend is likely to continue, the report predicts.
“PwC expects healthcare M&A and joint venture activity will continue to accelerate, driven by the need to reduce costs, increase productivity and develop more integrated business models,” according to a press release.
For the medical device industry, according to the report, that means more M&A and joint venture activity as companies look to expand their footprints and create savings.
“The medical device industry will consolidate to achieve cost savings and diversify product portfolios, driven by the need to combat the impact of federal excise taxes, downward pressure on pricing and reimbursement and declining procedure volumes in certain high-cost treatment areas,” the authors wrote.
News of 1,276 deals broke during the first five months of 2011, worth $454 billion. That’s a 39 percent increase in value over the same period in 2010, although deal volume was off 4 percent (there were 1,336 deals worth $327 billion during the same period last year, according to the report). Average deal size rose 45 percent to $356 million, from $245 million.
One factor that’s driving the increased dealflow is a sell-side drive from firms looking to streamline portfolios and “exit those businesses in which they don’t have number 1 or 2 market positions,” according to the report.
“In the last twelve months ending May 2011, carveouts comprised 29 percent of deal activity,” the authors wrote.
