Is MedTech M&A Alive and Well in 2023?
Given our roles as Merger & Acquisition (M&A) advisors focusing on the healthcare industry, we’re often asked about M&A market trends. The most common questions include: What market segments are interesting to buyers; Are valuations holding up for sellers?; and Is the M&A market still active?
As we regularly (weekly) receive inquiries from potential strategic and financial buyers looking for potential good businesses to acquire, let’s start with the first question – What market segments are interesting to buyers?
Software companies and/or companies with a software as a service (SaaS) model with >$1M in revenue. As the digital healthtech markets are growing, acquirers are consistently seeking companies that have reached some level of commercial adoption. Buyers enjoy most software models as it assures them of ARR (annualized recurring revenue). In most cases in M&A, earnings before interest & taxes (EBIT) is important. However, with growing software companies, EBIT isn’t required. Of course, it helps increase valuations.
Service companies, which may include staffing, revenue cycle management; clinical/regulatory services, and more. Within healthcare, similar to software, if your service company’s demonstrating recurring revenue and growth, then your business is highly sought after by financial and strategic acquirers.
Manufacturing companies are also in demand. Demonstrating the strength of our industry’s value versatility, successful manufacturing companies are included in many buyer purchasing mandates. Whether your company’s a medical manufacturing company selling directly to the market or a contract manufacturing organization (OEM supplier), acquirers are looking for you. For the contract manufacturers, it also helps if you’re a contract design manufacturing organization (CDMO) as CDMO’s tend to have higher margins and often receive higher valuations.
Buyers are also looking for specialty manufacturing companies such as molding, specialty pharma, etc. While molding and specialty pharma are quite different segments, acquirers are seeking companies that found a niche and are successful within it.
Growing in demand are home care companies as well as other segments. If your segment wasn’t listed here, it doesn’t mean it’s not in demand if you’re a successful company in your market segment. If you’re unsure, feel free to check with the authors on your type of business.
Regarding valuation, it’s true valuations are under pressure as the cost of money is higher in 2023 than it’s been in previous years. With that stated, if you have a successful business in the mentioned markets, then your potential valuation scenario is likely holding up as it’s a competitive market for buyers seeking your type of company. That’s one of the great things for all of us in medtech. Due to demographics, we continue to be a growth market segment and acquirers want to get in or bolt-on if they’re in.
As we summarize all the buyer activity within our medical industry, the answer to question 3 above becomes obvious. With potential acquirers contacting us every week seeking a company in one of the categories, it’s clear the medical M&A market is still highly active in 2023! For further validation, our frequent flyer miles this year are higher than ever.
About the authors: CCEO Florence Joffroy-Black is a long-time MedTech M&A and marketing expert. She can be reached at florencejblack@medworldadvisors.com. Managing Director Dave Sheppard is a former medical OEM Fortune 500 executive and an experienced MedTech M&A professional. He can be reached at davesheppard@medworldadvisors.com. “Value = Strategic Fit + Timing® is a registered trademark of MedWorld Advisors.
