Overall M&A activity in 2022 is still positive, even if the numbers tell a different story.

The maxim “figures don’t lie but liars do figure” has long been attributed to Mark Twain.

Understandable, considering the superior quality of his work. But, truth be told, he was not actually the inventor of that axiom.

Twain was more of an editor than a creator in this case, likely paraphrasing the 1854 adage from its original form: “Figures won’t lie but men that draw up the tables may.”

Regardless of exact wording, the underlying message is clear—in their most basic form, figures (numbers, mathematical data) are factually truthful, but can be presented in misleading ways.

Case in point: medtech M&A in 2022. Activity was down compared to last year, as record high inflation, geopolitical unrest, global recession fears, and lingering supply chain troubles eroded investor confidence.

“Continued uncertainty in the overall financial markets continues to weigh on the M&A appetite,” John Babitt, Americas Medtech Transactions Leader at EY (Ernst & Young), noted in the professional services firm’s Pulse of the Industry medical technology report 2022. “The overall medtech M&A and innovation ecosystem continues to remain intact, but near-term storm clouds are likely to pause transactions volumes into 2023.”

That pause has already impacted merger and acquisition activity this year. Deal value and volume fell considerably from 2021 levels, reflecting a shift in focus to integration and value-capture transactions, financial analysts claim.

Data from various industry sources confirm the decline in 2022 M&A activity, though each uses slightly different measuring tools. A PwC analysis, for example, found that semi-annualized deal value fell 85%, while J.P. Morgan statistics show a first half decline in venture capital investments. Financing for medtech diagnostics, digital therapeutics, and tools diminished 19.1% to $16.1 billion through June 30, the investment bank reported.

Total capital raised between July 2021 and June 2022 fell 30% to $30 billion—well below the previous decade’s $38.8 average, according to EY’s Pulse of the Industry. Financing levels dropped sharply in the first six months of 2022, the report concluded, as public markets tightened.

Capital raised by companies generating less than $500 million in revenue shrunk 35% (nearly $10 billion) to $18.6 billion in the 12 months ending June 30, 2022, and commercial leader capital slipped 20% during that time, Pulse data indicate. Equity financing dwindled 40% to $18.9 billion, with follow-on public offerings plummeting 61% and the IPO market declining 39%.

“The 30% drop-off in total financing levels—which particularly impacts the smaller medtechs that drive innovation within the industry—demonstrates how challenging the operating environment has become...” EY’s Pulse of the Industry stated. “...the first six months of 2022 saw a rapid decline in the medtech IPO market. With special-purpose acquisition company (SPAC) deals significantly slowing and the largest venture capital investments going to late-stage financing rounds, smaller medtechs’ access to the public markets looks far more constrained in 2022.”

Deal volume was down as well this year. Stout’s healthcare and life science transaction totals posted double-digit decreases in the first half of 2022, falling 15.7% in Q1 to 438 deals and 36.8% in Q2 to 338 proceedings. While a weaker first half was expected given the bolus of transactions consummated late last year, the second-quarter decline was far greater than Stout analysts had anticipated.

The springtime slump makes sense in retrospect, as it coincided with worsening inflation, strict COVID-19 lockdowns in China, and escalating warfare between Russia and Ukraine (leading to higher gas prices and supply shortages). Yet the poor M&A showing tells only part of the story.

The other part (a very important one, incidentally) is the record level of M&A activity last year. “2021 was an incredible outlier year. It is by far the biggest year that M&A has ever seen,” MedWorld Advisors CEO and president Florence Joffroy-Black told participants of an Oct. 6 webinar (click here to watch the webinar: MedTech M&A in 2022: Is it Still a Sellers Market?). “If you remember, things were kind of stopped in 2020, people waited, and in 2021, people started all over again. What’s interesting is we went up not only in the number of deals [in 2021] but also in the value of deals. 2021 will go down as a record year not only because of the value in deals but also because of the size of the mergers that took place.”

Transaction size was definitely a contributing factor to 2022’s downfall. The mega deals that helped bolster medtech M&A value last year (Thermo Fisher-PPD, $17.4 billion; Baxter-Hillrom, $12.4 billion; Steris-Cantel Medical, $4.6 billion) were missing in 2022. Orthopedics’ megadeal drought continued for a second consecutive year, with only two 10-figure transactions occurring through Nov. 1: Stryker Corporation’s $3 billion purchase of Vocera Communications Inc. and Patient Square Capital’s $1.25 billion acquisition of Austin, Texas-based prosthetic manufacturer Hangar.

In place of those larger acquisitions were smaller, capabilities-driven deals that helped enhance Paragon 28’s pre-operative planning services (via Disior); strengthen Össur’s limb product offerings (courtesy of Naked Prosthetics); expand Enovis Corporation’s augmented reality visualization system prowess (through Insight Medical Systems); augment OrthoPediatric Corp.’s clubfoot treatment options (via MD Orthopaedics); and fortify Acumed’s upper extremity solutions portfolio (per ExsoMed).

Most of the portfolio-enhancing deals were several hundred million dollars or less; Bioventus’s $450 million payout for CartiHeal was the year’s third-largest transaction (trailing the Stryker and Patient Square Capital purchases). Even large OEMs like DePuy Synthes, Smith+Nephew, Exactech, and Orthofix curbed their spending in 2022.

Not quite on par with last year’s activity.

Such a substandard performance, however, must be taken in context. Medtech M&A may indeed have been anemic this year compared with 2021 (an aberration, no doubt), but it nevertheless fared significantly better than in pre-pandemic years.

As Joffroy-Black agreed in the webinar, “Overall M&A activity in 2022 is still positive, even if the numbers tell a different story. There’s a lot of cash out there being used in deals. The level of cash used in M&A transactions has definitely gotten higher. If you look at healthcare...the deal count is down but it’s still a good number compared to 2020 or 2019. We are ahead of where we were then.”

Not a bad position to be in these days.

To view this article on the Orthopedic Design & Technology website, click here.