The UK medical technology or ‘MedTech’ industry has undergone radical transformation over the past decade.
Led by the consumerisation of MedTech devices, the shifting needs of an ageing population and government tightening on public healthcare spending, demand for innovative products has soared, as has interest in the firms developing them.
In recent years, global MedTech M&A activity has reached new heights in both volume and valuations, as financial and trade buyers, particularly from overseas, have sought out high returns in this growing sector.
MedTech has been one of the success stories of the post-financial crisis era.
Most evident in the US, where the Nasdaq biotech index has risen almost six-fold since 2009, the rise of MedTech has brought on a wave of M&A activity.
The surge in H1 2015 has been led by headline transactions such as Medotronic’s recent acquisition of Irish MedTech specialist Covidien, which created the world’s largest medical devices company, and a flurry of high-profile deals that have reshaped the sector.
Life Technologies Corp, for example, was purchased in May by Thermo Fisher for $13.5bn and Biomet by Zimmer Holdings for $13.35bn.
A major driver of the sector’s growth is the consumerisation of MedTech. Supported by the widespread availability of smartphones and tablets, providers are able to reach a large audience at low cost, a trend that stands to be consolidated as wearable technologies spread throughout the market.
Consumer-targeted solutions focus on monitoring and prevention to integrate healthcare in everyday life and limit the need for time-consuming traditional interventions.
Self-monitoring tools like ‘Buddy’, an NHS-endorsed app offering therapy support services, exhibit the high scalability inherent to the app form and may offer significant growth prospects.
At the other end of the market, established healthcare players are also seeking to build up a consumer-oriented MedTech offering – Google recently teamed up with UK pharmaceutical company Novartis to develop contact lenses to help diabetics monitor blood glucose levels.
Another key factor driving demand for new forms of healthcare in the UK is the country’s ageing population.
Data from the ONS shows that the proportion of over-65s in the population is likely to rise from under 20% in 2010 to over 28% by 2035.
With 70% of the annual healthcare budget already spent managing long-term medical conditions, and the Chancellor pledging in the July budget to secure £22 billion in NHS efficiency cuts by 2020, there is an opportunity for creative service providers to participate in this reinvention of public healthcare.
MedTech companies can fill this gap and ease the burden on strained public health systems. Once the process of R&D is complete and the technology is easily replicated, the high levels of institutional demand open up the possibility of numerous partnerships to roll out the product.
Platforms such as TotalMobile, which facilitates efficiency gains by integrating and streamlining patient records, can therefore rapidly increase their market share with the right backing, presenting opportunities for buyers.
Alongside the demand for efficiency and the shifts in the market, breakthroughs in the underlying technology have opened up new possibilities for investors in MedTech. As successful R&D brings development costs below the critical threshold for commercial application, providers are beginning to engage with the mainstream healthcare market.
Steeper, for instance, the British company behind the world’s first bionic hand, is now building on commercial success and expanding its offering with electric-powered wrists and elbows.
Overall, the market remains fragmented with lots of new entrants and offers a variety of potential acquisition targets.
In light of the strength of the dollar over the past year, a significant proportion of buying interest hails from the US. An example is ViaLogy, a New York investment firm, announced a £10.5m acquisition of UK molecular diagnostics firm, Premaitha Health, a pioneer in next-generation screening tests for Down’s syndrome.
With a Fed rate hike in sight before the end of year set to push the dollar higher, we can expect sustained inflows of M&A in the UK MedTech sector in H2 2015.
The collective impact of these forces is stimulating the sector’s high levels of growth.
The scalability of many new technologies, amplified by partnerships with a public healthcare sector in need of renewal, offers significant growth prospects for the sector.
In a climate of low interest rates and high interest from overseas buyers, the implication is sustained growth for the M&A market.
For companies in the MedTech sector, the next year is a good time to capitalize on good multiples driven by high levels of interest from trade, financial and overseas buyers.