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Healthcare M&A among medical device and diagnostics firms primed for increase


Merger and acquisition activity among U.S. medical device and diagnostic healthcare companies could accelerate in 2021 after a relatively subdued 2020 as the operating environment stabilizes and companies position themselves for future growth, according to new analysis from Fitch Ratings. 

On top of that, a number of medical technology special purpose acquisition companies (SPACs), which typically have 18-24 months to complete an initial business combination, went public in 2020. This could set the stage for an uptick in transactions and potentially drive up valuations.

Limited credit profile deterioration is expected with small-to-mid-sized deals. This is due to the build-up in cash to withstand the effects of the coronavirus pandemic and projected leverage headroom at existing rating levels for 2021.

Future transactions will likely be “tuck-in” in nature rather than transformational, Fitch found. Tuck-in M&A will be used to help fill product gaps and advance technologies/capabilities. Virology and cell analysis-focused assets are in favor while a trend to expand patient connectivity, which traditionally was not a focus, is also emerging. 

The need to advance portfolios to remain competitive will likely be the near-term catalyst for M&A rather than efforts to offset customer pricing pressure, which has historically been a primary catalyst for M&A in the sector.


Boston Scientific (BBB/Stable), Thermo Fisher Scientific (BBB/Stable) and Hologic (bb+*/stable) have all announced acquisitions since the beginning of 2021. Becton, Dickinson (BBB-/Stable) completed three tuck-in transactions in its fiscal first quarter, which ended in December 2020. Fitch’s rating case for a number of medical device companies in its portfolio, including Becton, Dickinson and Boston Scientific, assume annual tuck-in acquisitions.

For publicly-rated medical device and diagnostic companies, median fiscal year-end 2020 cash is projected to be $1.4 billion, compared with $618 million in FY 2019. Internally generated cash flow was complemented by debt and/or equity issuances to bolster liquidity during 2020. Becton, Dickinson, for example, issued $3 billion of equity in May 2020 to provide additional liquidity during the COVID-19 pandemic.

The search for growth is likely to be balanced against efforts to preserve balance sheets and liquidity until the health crisis eases, even though the effects of the pandemic have been manageable. Revenue stemming from testing for the virus has increased during the pandemic, with Thermo Fisher, PerkinElmer, Hologic and Bio-Rad (BBB/Stable) among the companies benefiting.

On the other hand, lower demand for products used in elective procedures, which were delayed due to the pandemic, is pressuring the revenue of companies such as Boston Scientific and Zimmer Biomet (BBB/Stable). Cost cutting is limiting the effects of revenue pressures on industry margins and cash flow. The median EBITDA margin for Fitch’s universe is forecast to remain relatively stable from 2019 to 2021 at 25{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} to 26{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}.

Fitch affirmed Boston Scientific’s ratings last month despite revenue pressure due to, among other things, the company’s significant progress strengthening its operating and financial performance through a focus on costs, product mix and targeted M&A. Boston Scientific’s EBITDA margin is projected to be among the highest in the industry at 30{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} in 2021.


Despite the financial and operational fallout from the pandemic, which diminished patient volumes and heightened labor and supply expenses, overall M&A activity in 2020 remained similar to years past, with analysts expecting the public health emergency will be a catalyst for future deals and partnerships.

Kaufman Hall found that the coronavirus has confirmed the strategic rationale for many of the transactions that were already planned or begun, and has accelerated the need for strategic initiatives that address industry transformation and alignment.

The analysts aren’t the only ones who believe healthcare M&A activity will continue to grow in the new year. Forty-four percent of healthcare CFOs say the pandemic will drive an increase in partnerships across the healthcare ecosystem, according to the 2021 BDO Healthcare CFO Outlook Survey.

Moving forward, organizations with strong balance sheets will be in a position to take advantage of other system’s divestitures to grow their capabilities and expand into new markets, according to Kaufman Hall.

Twitter: @JELagasse
Email the writer: [email protected]


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