The decline in private insurance, a squeeze on public spending, and the move towards non-surgical interventions saw only marginal growth in the medical equipment and supplies sector during 2012, according to industry experts.
However, a spate of acquisitions and deals within the marketplace means the outlook for the coming year looks favourable for the sector.
Ramesh Jassal, senior healthcare analyst at Clearwater Corporate Finance, revealed that the sector grew by 5.6% in 2011 and is currently worth £214bilion.This is forecast to grow to £276billion by 2016.
Emerging markets are offering the healthcare sector opportunities for growth. This is being driven by a number of factors including stronger economic growth compared to other regions of the world, government funding and reforms, changing consumer lifestyles, increasing penetration of medical insurance products, and rises in disposable incomes which has increased the demand for quality healthcare services
However, in 2012 there was only marginal revenue growth due to market volatility caused by a range of factors including reduced demand as individuals and health providers support non-surgical strategies prior to any surgical intervention.
Jassal told BBH : “Demand for medical devices is expected to register different rates of growth between developed markets such as the US and Western Europe, and the emerging markets of Asia-Pacific and Latin America.
“Strong growth in these latter markets has contributed to an increase in revenue optimism and, as such, the medical equipment and supplies sector continues to generally be a very attractive segment within the broader healthcare sector.”
In terms of deal activity, with record levels of cash on corporate balance sheets, more than a fifth of companies in the sector have made multiple transactions over the last couple of years. In fact some of these companies have gone on acquisition sprees acquiring four or more companies, such as Covidien, Thermo Fisher Scientific, Boston Scientific Corporation, Medtronic, Stryker Corporation, Teleflex, and GE Healthcare. Essilor International has acquired 14 companies following an aggressive drive into emerging markets.
In 2012 there was a total of 330 deals in the medical equipment and supplies sector compared to 443 in 2011, a decline of around 26%. Interestingly, however, deals above £500m accounted for 74% of the total deal value in 2012, and 63% in 2011.
The largest deal by far was Johnson & Johnson’s acquisition of Synthes, a global manufacturer of orthopaedic devices, for £12.7billion. As a result, Synthes will strengthen DePuy’s trauma line and its joint replacement offering by expanding the product range.
At the other end of the scale, a notable deal below £500m included the acquisition of Synovis, a leading provider of biological and mechanical products for soft tissue repair used in a variety of surgical procedures, for £165m by Baxter. The deal expands Baxter's regenerative medicine portfolio and biosurgery franchise, which includes a number of devices and biological products for hemostasis, tissue sealing and adherence.
The majority of acquirers in 2012 came from the US with 53% (174) of the deals. France, UK, Germany and the Netherlands accounted for 23% (76) and by contrast, companies in emerging markets like China are predominantly acquiring inbound opportunities. The reason for this is that Chinese regulatory authorities are implementing stringent conditions to improve quality and safety in the sector, and this is driving further consolidation of the market and reducing the number of state-funded companies.
Target acquisitions have been predominantly located in the US with 52% (173) of the deals. Germany, UK, France, China, Sweden, Japan and the Netherlands accounted for 25% (77) of the deals. The majority of the German targets were acquired by domestic companies, showing further consolidation in a healthcare market that is under cost pressures.
Jassal commented: “Chinese companies seem to be gaining interest from France, Japan and Sweden. For instance, Getinge AB acquired Acare Medical Science, the Chinese medical equipment manufacturer, for a consideration of £17m. The acquisition is in line with Getinge's strategy to increase its presence in emerging markets and to offer a product range focused on price-sensitive customer segments.”
Over the next few years we expect a lot of deal activity in fields such as early diagnosis, patient homecare devices, and technologies that provide early detection. We also expect to see consolidation around technologies that reduce surgical interventions and long hospital stays
On the future of the sector, he added; “Emerging markets are offering the healthcare sector opportunities for growth. This is being driven by a number of factors including stronger economic growth compared to other regions of the world, government funding and reforms, changing consumer lifestyles, increasing penetration of medical insurance products, and rises in disposable incomes which has increased the demand for quality healthcare services.
“The wider drive towards more inorganic growth across the developed world is also being driven by a number of interlinked factors. High operating costs, rising competition, the need to increase geographical presence in key markets, stringent government regulations, high R&D costs, and pressure on bottom-line performance are just some of the key stimuli.
“Over the next few years we expect a lot of deal activity in fields such as early diagnosis, patient homecare devices, and technologies that provide early detection. We also expect to see consolidation around technologies that reduce surgical interventions and long hospital stays, which in turn reduce waiting times and unnecessary admissions.”