MEDTECH SECTOR IN THE SPOTLIGHT

Authored by:

Frank de Hek, Private Equity Team Leader, Oaklins

Robert Boersma, Healthcare Team Leader, Oaklins

Medtech's propelling innovations are changing lives and M&A

Software and related technology companies dealing with healthcare are in high demand. 

The medical technology (“medtech”) market consists of companies involved in the development, production and distribution of technology used to prevent, diagnose, monitor or treat diseases. 

Global medtech is a high-growth market, forecast to grow to US$594.5 billion by 2024 (+5.6% CAGR 2017–2024). Positive drivers include (i) population growth paired with more chronic diseases, (ii) technological niche advancements offering above-average upside potential in medical robotics (+21.1% CAGR 2019–2024) and digital twin technology (+38.2% CAGR 2018–2025) and (iii) increased cooperation with giant tech companies allowing for improved bargaining power vs insurers and ability to capture untapped market potential in wearables niche (+27.9% CAGR 2020–2027). 

In addition to high growth, favorable market features entail (i) non-cyclical market, (ii) above-market-average top-line growth trajectories combined with attractive profitability ratios and (iii) high entry barriers. 

Also, from an M&A perspective, medtech is an attractive market. Significant regulatory, technological and social change are driving a consolidation wave that shows no sign of stopping. Both strategic buyers and private equity firms, with an unprecedented amount of cash available, are aggressively pursuing deals. Primary motivations for strategic deals are to (i) increase scale, (ii) expand internationally, (iii) leverage cross-selling initiatives and (iv) combine R&D capabilities. 

Despite the COVID-19 pandemic, private equity– driven demand is expected to remain high given the industry’s attractive top-line growth, profit margins and resilient nature. 

Medtech is widely regarded as a durable and profitable industry and attracts keen interest from different players because its implementation is inevitable: as Western healthcare systems become increasingly strained by the proliferation of lifestyle diseases, an aging population and higher patient expectations, they are compelled to incorporate technology into their structure to improve accuracy, systems productivity and cost-effectiveness. ROBERT BOERSMA, HEALTHCARE SPECIALIST, OAKLINS 

Medtech companies are in high demand, both by strategic and financial buyers

In the second half of 2019 medtech saw the highest number of deals since 2016 and witnessed peak revenue and EBITDA valuation multiples. 

Though the yearlong private equity healthcare buying spree has slowed down as sizable targets are becoming scarcer, acquirers both strategic and financial are forking out big sums for revolutionary medtech solutions. 

This, in turn, is driving a very active medtech M&A market as companies compete for acquisitions in AI as a strategy to support innovation and seek to dominate technology sectors such as medical data analysis. With the sector’s recession resistance, large addressable sub-markets, high industry fragmentation, innovation and adoption of technology, we expect this trend to continue. 

Case study: Dutch market leader in healthcare imaging software

When Oaklinsʼ Dutch team identified and approached more than 120 potential buyers for healthcare software company RVC Medical IT (RVC), they were met with keen interest, receiving offers from numerous players. 

RVC is a leading independent software vendor offering a comprehensive healthcare enterprise imaging software suite. With a market share of around 53% and a customer base of 41 hospitals, RVC is the clear market leader in the Netherlands. As part of the RVC’s internationalization strategy, the company targets adjacent countries with highly advanced healthcare systems. All these characteristics made RVC a must-have asset in a market that is scouting for resilient companies with growth potential. In addition to the ability to generate growth and profitable margins, the quality of management and an innovation-driven DNA had a strong influence on the interest from buyers. This was combined with a very well-structured, efficient and competitive process run by Oaklins, ultimately resulting in superior deal terms for the sellers. 

After a competitive process, Nexus AG stood out from the crowd and became RVC Medical IT’s majority shareholder.

The Oaklins team has been instrumental in realizing this transaction. They have clearly proven their added value with their well-managed process and access to all key players within the healthcare technology market. This very much contributed to obtaining the best outcome for all RVC stakeholders. SVEN VAN BERGE HENEGOUWEN, CHAIRMAN SUPERVISORY BOARD AT RVC & PARTNER AT MAIN CAPITAL PARTNERS

Oaklins advised us from start to finish. Their extensive network of both strategic and financial parties active within the healthcare and software market together with their comprehensive transaction support really added value to the process. JOOST VAN GEIJN, CEO AND SHAREHOLDER AT RVC MEDICAL IT