Medtech Deals Buoyed by Cost Pressures, Device Tax

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"Medical device mergers look poised to take off in 2013 as the industry compensates for shrinking reimbursements, a new U.S. tax and executive shake-ups at its biggest companies."

Reuters, Debra Sherman and Soyoung Kim

Medical device mergers look poised to take off in 2013 as the industry compensates for shrinking reimbursements, a new U.S. tax and executive shake-ups at its biggest companies.

Merger and acquisition activity in the sector has fallen near the lows reached in 2009, during the global financial crisis, but industry executives and bankers say the situation is changing.

Heart device maker St. Jude Medical Inc sees greater acquisition opportunities stemming from a new U.S. tax on companies in the sector. The tax, which takes effect next year, is meant to help fund the country's healthcare reform.

"That will be an immediate cash drain on some of the smaller companies," St. Jude Chief Financial Officer John Heinmiller told Reuters. "Some of that will impact valuations, and as those come down, it may make for more attractive takeout targets."

For their part, St. Jude and other large companies are likely to seek out innovative new products through acquisitions as financially strapped governments pressure manufacturers to lower their prices and the weak economy curbs demand from patients.

Medtronic Inc, the world's largest medical device maker, has been viewed as a likely buyer, but Chief Executive Officer Omar Ishrak has said the company will be careful not to acquire anything that will hurt profits.

Medtronic, Johnson & Johnson, Stryker Corp and Covidien PLC have all replaced their CEOs in the past 18 months, and former J&J executive Michael Mahoney will become Boston Scientific Corp's CEO in November. These changes have slowed the dealmaking process. . .View Full Article

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