Medical Technology M&A Review Q2 2013

Transcription

1 Medical Technology M&A Review Q For additional information or inquiries, please contact one of our following team members: Bryan Hughes.. bryan.hughes@pmcf.com Brian Gorski.. brian.gorski@pmcf.com David Sastre.. david.sastre@pmcf.com Abhi Rao.. abhi.rao@pmcf.com

2 About PMCF P&M Corporate Finance ( PMCF ) is an investment banking firm with offices in Chicago and Detroit. With a team of professionals, PMCF is focused exclusively on middle-market transactions. Our deep knowledge of the medical technology market covers a wide range of sectors, including contract manufacturing & research, medical devices, in vitro diagnostics and life science instruments. Offering a depth of advisory services, PMCF has helped clients worldwide meet their sale, acquisition, financing, and strategic alliance goals. Additional information on PMCF can also be found by visiting our website,. Investment Banking Services: Mergers and Acquisitions Sales and Divestitures Capital Raising Strategic Assessments Fairness Opinions CHICAGO W. Washington Street, Suite Chicago, IL.. DETROIT Northwestern Highway, Suite Southfield, MI..

3 Medical Technology M&A Review Q Venture Capital Activity Overview Broad Economy Through the first six months of, the value of venture capital investments across all industries decreased -.% (-$9.MM) over the same time period in, driven primarily by a significant decline in venture dollars placed in industrials/energy (-$.B), telecommunications (-$.MM), semiconductors (-$.MM) and medical devices and equipment (-$9.MM). Segments that enjoyed meaningful increases in funding in H over H included biotechnology (+$.MM) and networking/equipment (+$.MM). From to, the increase in venture capital dollars invested increased from Q to Q in each year by an average of +.%. Growth in investments from Q to Q lagged significantly behind this three-year average, experiencing a growth rate of just +.%. Venture capital investment represents an alternative asset class that is not correlated to market returns, and as such, the total number of investments made is not the best proxy to monitor changes in investor sentiment. Changes in investment dollars, however, provide a clearer picture as to directional trends. Not surprisingly, investments across all stages of development (see Stage Definitions above right) primarily decreased in H when compared to H. That being said, the overall mix across stages remained relatively flat, with investments in Later Stage companies attracting the largest percentage (.%) of investment dollars. Medical Devices & Equipment Segment Venture capital investment in medical devices and equipment represented.% of total venture investment in H, down from.% in H. However, in dollar terms, investment in medical devices and equipment decreased $9. million to $. billion in H, a -.% decline over H. This drop outpaced the overall industry which experienced a -.% decline in venture capital investment dollars in H. Outlook Concerns about the long time horizon for gaining necessary regulatory approvals and the hesitancy to invest amidst an uncertain reimbursement environment have curtailed venture capital investment in the medical device space. We anticipate venture capital activity in the medical device space will not see significant growth for the balance of, and will likely experience at best a flat year as investors remain cautious of investing in an increasingly uncertain environment. Source: VentureSource Medical etrack. Excludes Specialized Sectors. Stage Definitions Start-up/Seed: The company has a concept or product under development, but is likely not fully operational. Typically in existence less than months. Early: The company has a product or service in testing or pilot production. In some cases, the product may be commercially available. May or may not be generating revenues. Typically in business less than three years. Expansion: Product or service is in production and commercially available. The company demonstrates significant revenue growth, but may or may not be showing a profit. Typically in business more than three years. Later: Product or service is widely available. Company is generating on-going revenue; potentially positive cash flow. More likely to be, but not necessarily, profitable. May include spinoffs of operating divisions of existing public companies and established private companies. Number of Investments Valuation ($mm) $ $ $ $ $ $ $ $ $ Number of Investments Q Q Number of Investments by Stage of Development Q Seed Q Q Q 9 9 Q Q Early Stage Q Q Q Q Expansion Q Q Q Q Later Stage Source: Thomson Reuters & National Venture Capital Association Pre-Money Valuation by Series 9 Q Q Series A Series B Series C Series D+ Q Q Q Q Q Number of Investments Q Q Q Source: Cooley Godward Kronish, LLP VC Investment in Medical Device & Equip. Q Q Q Q Q Q Investment Dollars $, $ $ $ $ Source: Thomson Reuters & National Venture Capital Association Investment Dollars ($mm)

4 Medical Technology M&A Review Q Medical Device Public Comparables Diversified Medical Device Public Comparables Summary Company Name LTM as of Cash Debt Market Cap TEV REV EBITDA P/E Boston Scientific Corporation CR Bard Inc. Intuitive Surgical, Inc. Johnson & Johnson Medtronic, Inc. Smith & Nephew plc St. Jude Medical Inc. Stryker Corporation // // // // // /9/ /9/ // 9,9,9,,,,,,9,9,,, 9, 9,,,,,,,9,,,,,,9,.x.x.x.x.x.x.x.x.x.x 9.x.x 9.x.x.x.x 9.x 9.x.x.x.x.x 9.x High Low,9,,,9,9,9,,9, 9,,,9,,.x.x.x.x 9.x.x.x.x 9.x.x 9.x.x.x Diversified Medical Device Public Trading Multiples % Diversified Medical Device Index.x.9x 9.x 9.9x.x.x.x 9.x.x.x %.x.9x.x.x.x.x.x.x.x.x %.x 9 Q Q Q Q Q Q Average Enterprise Value/EBITDA Average Enterprise Value/Revenue -% Jan- Feb- Mar- Apr- May- Jun- PMCF Diversified Medical Device Index S&P Growth Index Average EV/EBITDA multiples for the Diversified Medical Device ( DMD ) comparables enjoyed a strong start in, growing from 9.x at the end of Q to.x at the end of Q. Growth slowed in Q, with EV/EBITDA multiples finishing the quarter at.x. This compares favorably to a year ago, when EV/EBITDA multiples finished at.x at the end of Q. EV/Revenue multiples remained flat through Q, finishing at.x, up slightly from Q levels but flat when compared to the end of Q. The PMCF DMD Index grew by +.% in the first half of, with +.% of this growth occurring in Q. This compares favorably to the S&P Growth Index, which grew +.% in the first half of, with +.% occurring in Q. Source: S&P Capital IQ, Company Reports PMCF

5 Medical Technology M&A Review Q Medical Device Public Comparables Orthopedic Medical Device Public Comparables Summary Company Name LTM as of Cash Debt Market Cap TEV REV EBITDA P/E Alphatec Holdings, Inc. Exactech Inc. Globus Medical, Inc. MAKO Surgical Corp. NuVasive, Inc. Orthofix International N.V. Smith & Nephew plc Stryker Corporation Symmetry Medical, Inc. Baxano Surgical, Inc. Wright Medical Group Inc. Zimmer Holdings, Inc. // // // // // // /9/ // /9/ // // //,, 9,, 9,,9,,,9, 9,9,,, 9 99,.x.x.x.x.x.x.x.x.x.x.x.9x.x.x.x.x.x.x.x 9.x.x.9x 9.x.x.x.x 9.x.x.x.x High Low,,,,9 9,, 9.x.x.x.x.x.x 9.x.x.x.x 9.x.x.x.x.9x.x.x Orthopedic Medical Device Public Trading Multiples.x.x.x 9.x.x.x % % Orthopedic Medical Device Index.x.9x.x.x.x.x.x.x.x.x %.x 9 Q Q Q Q Q Q Average Enterprise Value/EBITDA Average Enterprise Value/Revenue -% Jan- Feb- Mar- Apr- May- Jun- PMCF Orthopedic Medical Device Index S&P Growth Index Overall, trading multiples for the Orthopedic Medical Device ( OMD ) comparables have grown steadily through Q. While not reaching the highs experienced in Q, EV/EBITDA multiples have experienced growth in back to back quarters, finishing Q at.x. After experiencing a decline in three consecutive quarters (Q Q ), EV/Revenue multiples have grown significantly in the first two quarters of, finishing Q at.x. After growing by +.% in Q, the PMCF OMD Index reached a high of +.% in mid-may before retreating, finishing Q at +.%. Despite this decline, the OMD Index outperformed the S&P Growth Index which finished Q +.% for the year. Source: S&P Capital IQ, Company Reports

6 Medical Technology M&A Review Q Medical Device Public Comparables Cardiovascular Medical Device Public Comparables Summary Company Name LTM as of Cash Debt Market Cap TEV REV EBITDA P/E ABIOMED, Inc. AngioDynamics Inc. Cardiovascular Systems Inc. CryoLife Inc. Edwards Lifesciences Corp. Endologix Inc. LeMaitre Vascular, Inc. Merit Medical Systems, Inc. Sorin SpA Thoratec Corp. Vascular Solutions Inc. // // // // // // // // // /9/ // 9,9,,9, 9,,.x.x.x.x.x.x.x.x.x.x.x.9x.9x.x.9x.x.x.x.9x.x 9.x.x.x.x.x.x High Low,9,,,.x.x.x.x.x.x.9x.9x.x.x.x 9.x.x Cardiovascular Medical Device Public Trading Multiples % Cardiovascular Medical Device Index.x.x.x.x.x.x.x.x.x.x.x % % % -% -%.x.x.x.x.x.x.x.x.x.x -% -%.x 9 Q Q Q Q Q Q Average Enterprise Value/EBITDA Average Enterprise Value/Revenue -% Jan- Feb- Mar- Apr- May- Jun- PMCF Cardiovascular Medical Device Index S&P Growth Index Trading multiples for the Cardiovascular Medical Device ( CVMD ) comparables have not fared as well as other medical device counterparts through Q. Following a slow start to, average EV/EBITDA multiples peaked at the end of Q, reaching.x before finishing the year at.x. Q saw a slight increase in EV/EBITDA; however, multiples experienced a decline in Q, finishing the quarter at.x. EV/Revenue multiples followed a similar trend, increasing to.x at the end of Q, before declining to.x at the end of Q. The PMCF CVMD Index was down slightly through mid-late April. Following this period, the CVMD Index experienced a significant decline as several companies including Merit Medical Systems, Edwards Lifesciences, Thoratec, and Vascular Solutions announced poor earnings. Edwards Lifesciences was most impacted by poor earnings, having missed Q revenue targets; $9. million vs. a consensus analyst expectation of $. million for the quarter. In aggregate, the PMCF CVMD Index finished Q down -.% since the beginning of the year. Source: S&P Capital IQ, Company Reports PMCF

7 Medical Technology M&A Review Q Medical Device Public Comparables Diversified Diagnostic Public Comparables Summary Company Name LTM as of Cash Debt Market Cap TEV REV EBITDA P/E Abbott Laboratories Becton, Dickinson and Co. Danaher Corp. Hologic Inc. Johnson & Johnson Laboratory Corp. of America Novartis AG Orion Oyj Roche Holding AG Sigma-Aldrich Corporation Thermo Fisher Scientific, Inc. // // // /9/ // // // // // // /9/ 9,9,99, 9,9,,,,9,9,,,9,,,9 9,, 9,9,,9, 9,,,, 9,,,,9, 9,,,,99,, 9,,.x.x.x.x.x.x.x.x.x.x.9x.x 9.x.x.x.x.x.x.x.9x.9x.x 9.x.x.x.x.9x.9x.x.x.x.x High Low,9,,99,9,99,,,,,,,,,.x.x.9x.x.x.x.x.x.x.x.x 9.x.x Diversified Diagnostic Public Trading Multiples % Diversified Diagnostic Medical Device Index.x.x 9.x 9.x 9.x 9.x 9.x.x.x.x %.x.x.x.x.x.x.x.x.x.x %.x 9 Q Q Q Q Q Q Average Enterprise Value/EBITDA Average Enterprise Value/Revenue -% Jan- Feb- Mar- Apr- May- Jun- PMCF Diversified Diagnostic Index S&P Growth Index EV/EBITDA and EV/Revenue multiples for the Diversified Diagnostic Medical Device ( DDMD ) segment have remained flat since the beginning of, finishing Q at.x and.x, respectively. Although the market value of equity of DDMD members appreciated as a whole, EBITDA and revenue grew in a similar manner, which translated to a net-neutral impact on valuation multiples. The PMCF DDMD Index reached a high of +.% in mid-may before correcting and finishing Q at +.9%. This compares favorably to the S&P Growth Index, which grew +.% in the first half of, with only +.% of this growth occurring in Q. Source: S&P Capital IQ, Company Reports

8 Medical Technology M&A Review Q Mergers & Acquisitions As can be seen in the adjacent table, the total number of medical device transactions experienced a second consecutive quarter of declining activity, with 9 transactions taking place in Q compared to in Q, a decline of -.%. The decline in transaction volume is even more pronounced when comparing H to H, with and transactions, respectively, representing a year-over-year decline of -.9%. These trends run counter to the belief that the Affordable Care Act s ( ACA ).% excise tax on medical devices as well as shrinking reimbursements would pressure companies to turn to inorganic strategies to drive growth. The sentiment that heavy regulation may limit the growth of potential acquisition targets as well as questions surrounding the pace of implementation of key elements of the ACA may be impediments to growth in M&A activity in the medical device space. Overall transaction values remained relatively flat from Q to Q, with average values of $. million and $. million, respectively. These averages are well below H levels of $. million. It should be noted that, for mean comparison purposes, the following transactions were excluded from Q figures: Valeant Pharmaceuticals International s $. billion acquisition of Bausch & Lomb Holdings Incorporated from Warburg Pincus LLC Thermo Fisher Scientific, Inc. s $. billion acquisition of Life Technologies Corporation Average EBITDA multiples were.x for H, which is slightly below the.x experienced in H. However, EBITDA multiples have experienced two consecutive quarters of growth, averaging.9x for Q. Average Revenue multiples remained relatively flat when comparing H to H, finishing the six month periods at.x and.x, respectively. Considering the significant drop in both average transaction value and total transaction volume when comparing H to H, it is clear that the market is still willing to pay fair multiples for quality transactions. H M&A activity was spread evenly across segments of the medical device market, with the exception of the Therapeutic Device segment, which captured.% of total transaction volume. The next most active segments were Service and Diagnostic (non-imaging), each representing.% of overall transaction volume. Number of M&A Transactions Medical Device M&A Transaction Statistics Q Q Q Q Q Q Q Q Q Q M&A Transactions Average Transaction Size Period Q ' Q ' Q ' Q ' Q ' Q ' Q ' Q ' Q ' Q ' Q ' Q ' H H H H Medical Device M&A Transaction Metrics / Transaction Value $. $. $. $. $. $ 9. $. $. $. $. $. $. $. $ 9. $. $. $ $ $ $ $ $ Revenue.x.9x.x.x.9x.x.x.9x.x.x.x.x.x.x.x.x Transactions by Product Segment H Therapeutic Device % Service % Others % Mobility/Rehab % Equipment % EBITDA.x.x.x.x.x.x.x.9x.x.x.x.x.x.x.x.x Average Transactions Size ($mm) Note: Certain outliers have been removed Consumable/Disp % Contract Manufacturing % Diagnostic (imaging) % Diagnostic (non-imaging) % Distribution % PMCF

9 Medical Technology M&A Review Q Medical Equipment M&A Trends Number of Deals Trends in M&A: Transactions by Buyer Type 9 H Strategic Buyer Financial Buyer Acute Care Aesthetic Furniture / Equipment Monitor Ophthalmology Respiratory Safety / Drug Delivery Surgical Wound Care Other Total Transactions by End Market End Market Q Medical equipment M&A activity has slowed significantly in when compared to levels. During H, 9 deals occurred, compared to 9 for full year. As such, activity in the Medical Equipment space will have to increase substantially to achieve similar levels attained in. Medical furniture/equipment has been the most active sub-sector of medical equipment, accounting for transactions (.9%) through H. Cross-border deal volume is down in, with four transactions taking place in H. This is compared to, when total deals took place. Three of the four cross-border transactions in H involved a US buyer purchasing an international entity Q PE.% Private Acquirer.% H H Buyer Type PE to PE.% Public Acquirer.% PE.% PE to PE.% Private Acquirer.9% Public Acquirer.% Cross-Border Transaction Trends Seller-to-Buyer Q Q Int'l - to - Int'l U.S. - to - Int'l U.S. - to - U.S. Int'l - to - U.S. Total 9 9 Featured Sector Transactions: April Kimberly-Clark Corporation (NYSE: KMB) announced the acquisition of the anesthesia business of Life-Tech, Inc., a Texas-based medical device manufacturer. The newly acquired assets will become part of Kimberly-Clark s Health Care business and will be added to K-C Health Care s ON-Q family of products. Kimberly-Clark had previously distributed Life-Tech s anesthesia-based product portfolio. Other business segments of Life-Tech are not included in this transaction. The acquisition fits strategically with our vision of being the leader in comprehensive PNB (Peripheral Nerve Block) solutions, said Joanne Bauer, president, Kimberly-Clark Health Care. The Life-Tech assets will allow ON- Q to capitalize on its leading position in the pain pump market and enhance margins on these products through internal manufacturing. April Thermo Fisher Scientific (NYSE: TMO) announced the acquisition of Life Technologies Corp (NAS- DAQ: LIFE) for $. billion, of which $. billion will be paid in cash. Thermo Fisher Scientific is a laboratory equipment company focusing on analytical and chemical supplies and services. Life Technologies is a supplies and service provider designed to supplement scientific research, genetic analysis, and applied sciences. Life Technologies brand portfolio will help strengthen innovative collaboration between Thermo Fisher s business units, while also helping mitigate costs and redundancies.

10 9 Medical Technology M&A Review Q Therapeutic Device M&A Trends Number of Deals Transactions by Buyer Type H Strategic Buyer Financial Buyer Transactions by End Market End Market Q Aesthetic Cardiovascular ENT Gastrointestinal Neurovascular Ophthalmology Ortho Safety Wound Care Other Total 9 9 Q 9 Trends in M&A: Therapeutic device M&A activity got off to a strong start in the first half of with 9 transactions. Activity in the sector is on pace to surpass the levels experienced in (9 transactions). Activity in orthopedics remains the most active end market in the therapeutic device segment, accounting for transactions (.9% of therapeutic device volume) in H. Cross-border deal volume has been active in H, accounting for.9% of total M&A activity, which compares favorably to the levels experienced in (.%) and (.%). PE.% H H Buyer Type PE to PE.% Private Acquirer.% Public Acquirer.% PE.% Private Acquirer.% PE to PE.% Public Acquirer.% Cross-Border Transaction Trends Seller-to-Buyer Q Q Int'l - to - Int'l U.S. - to - Int'l U.S. - to - U.S. Int'l - to - U.S. Total 9 Featured Sector Transactions: June Wright Medical Group (NASDAQ: WMGI) entered into a definitive agreement in which MicroPort Medical BV, a subsidiary of MicroPort Scientific Corp., will acquire Wright Medical s OrthoRecon business for $9. million in cash. The OrthoRecon division includes hip and knee implant products, generating roughly $9. million in global revenue in. The acquisition signifies MicroPort Medical s intent to grow its medical implant business in order to capitalize on the growth in the Chinese hip and knee implant market. MicroPort Medical is a diversified medical device company, supplying customers with stents, drug delivery systems, vascular devices, and surgical tools in China and other countries. July RTI Biologics (NASDAQ: RTIX) announced that it completed the acquisition of Pioneer Surgical Technology for $. million in cash. Based in Marquette, MI, Pioneer Surgical Technology manufactures and distributes metal and synthetic products related to the orthopedics, biologics, cardiothoracic, and trauma markets. The acquisition of Pioneer Surgical marks RTI Biologics initiative to expand its imprint on the metal and synthetic implant markets by growing distribution capabilities. PMCF

11 Medical Technology M&A Review Q Consumable and Disposable M&A Trends Transactions by Buyer Type Transactions by End Market Number of Deals 9 H Strategic Buyer Financial Buyer End Market Drug Delivery Home Health Hospital Care IVD Safety/Inf. Control Surgical Wound Care Other Total Q Q Trends in M&A: Consumable and Disposable M&A activity in the first half of is off to a slow start, with transactions through June, and only four occurring in Q. Deal volume for consumable and disposable manufacturers during has been concentrated in the hospital care and safety/infection control industries, similar to activity. Cross-border transaction activity was limited to only one transaction in H, compared to six transactions in. PE.% Private Acquirer.% H H Buyer Type PE to PE.% Public Acquirer.% PE.% PE to PE.% Private Acquirer.% Public Acquirer.% Seller-to-Buyer Q Q Int'l - to - Int'l U.S. - to - Int'l U.S. - to - U.S. Int'l - to - U.S. Total Cross-Border Transaction Trends Featured Sector Transactions: May Juniper Investment Company made a non-binding proposal to purchase the remaining 9.9% stake of Theragenics Corp (NYSE: TGX) from shareholders for approximately $. million in cash, or $. per share. The Board of Directors of Theragenics unanimously approved the merger agreement and the transactions contemplated thereby. The merger agreement permits Theragenics to solicit competing offers through September,. Headquartered in Buford, GA, Theragenics Corporation operates two business segments: surgical products and its brachytherapy seed business. The surgical products business manufactures and distributes wound closure, vascular access, and specialty needle products. Vascular access includes introducers, guidewires, and related products. Specialty needles include coaxial, biopsy, spinal, and disposable veress needles, access trocars, implanters, introducer products, and other needle-based products. May Ambu A/S (CPSE: AMBU B) has acquired all shares of First Water Heathcote, a UK-based manufacturer of a range of conductive adhesive gels for use in the production of skin-contacting biomedical electrodes, such as Ambu s ECG electrodes, Electro Surgery, and Defibrillation. Prior to the acquisition, Ambu purchased roughly.% of First Water Heathcote s total inventory. High quality gel is a key ingredient in Ambu s ECG electrodes, and the acquisition will strengthen Ambu s competitive position by having in-house hydrogel competencies.

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