Article preview reprinted from IN VIVO - December/January, 2010
Advanced Medical Optics, Ablation Frontiers, Acclarent, CoreValve, Evalve, Visiogen.-no tip of the iceberg last year; they were just about the whole berg in medical device M&A. Starting with AMO last January and ending with Acclarent in December it would be easy to look at the series of impressive device acquisitions that took place last year and be lulled into the belief that 2009 was a banner year for medical device M&A. In fact, just the opposite was true: total deal values and numbers were at their lowest peak in more than half a decade. What does it take to get a company sold these days? To look more closely at the topic, we asked some folks who've recently been on either side of a deal to talk, not so much about the current state of deal-making, but about how successful deals come about in today's environment. Read more...
The Art of the Deal: Device M&A in Difficult Times
A handful of large deals obscured the fact that selling companies was difficult in 2009. What does it take to get a company sold these days?
by David Cassak
Advanced Medical Optics (now Abbott Medical Optics Inc.), Ablation Frontiers (Medtronic Ablation Frontiers LLC), Acclarent Inc., CoreValve (Medtronic CoreValve LLC), Evalve Inc., Visiogen Inc.—no tip of the iceberg last year; they were just about the whole berg in medical device M&A. Starting with AMO last January and ending with Acclarent in December , it would be easy to look at the series of impressive device acquisitions that took place last year and be lulled into the belief that 2009 was a banner year for medical device M&A. In fact, just the opposite was true: total deal values and numbers were at their lowest peak in more than half a decade. (See also "Top Device Stories of 2009: A Year of Economic Revival and Regulatory Risk," this issue.) What happened? The overall economic meltdown likely contributed in part, hammering stock prices at the big device companies and, probably more significantly, fostering an uncertainty and conservatism among big buyers about where to place bets next. As the number of small, venture-backed companies running out of cash began to grow, would-be willing sellers even began to complain that big companies weren't bargain hunting—that they weren't coming to the table with offers that, just a few years before, the companies and their investors would have rejected out of hand. As Woody Allen once complained about a certain restaurant, "The food's lousy and the portions are small."
Indeed, at times it felt that, with the exception of Medtronic Inc. Abbott Laboratories Inc., and Covidien Ltd., no one was actually buying anything last year. For a device industry that had seen record numbers of venture dollars invested in each of the three previous years, the M&A slowdown has made a lot of people nervous. In devices, no one cares if there's no IPO market—over the last decade there's been fewer years with an open IPO market than a closed one--as long as a robust M&A climate continues to provide strong, predictable exits. Even in the darkest days of the late 1990s, the willingness of a handful of large device companies, including Medtronic, Johnson & Johnson, and Boston Scientific Corp., to acquire aggressively rescued small companies and their investors, when public investors had fled the sector. But now, a decade later, some industry executives are wondering: could it be that even M&A is no longer a sure thing?
Fortunately, there are signs now that that's too apocalyptic a view—in fact, the M&A slump seems largely to have taken place over the year-long period extending from the fourth quarter of 2008 to the third quarter of 2009. But last October, at the end of the third quarter, the idea that M&A was no longer something CEOs and their investors could count on wasn't far-fetched. And so at the Phoenix Conference held last October, an annual industry event sponsored by Elsevier Business Intelligence, PriceWaterhouseCoopers, Versant Ventures, and Wilson Sonsini Goodrich & Rosati, concerns about M&A and exits generally were widely expressed. To look more closely at the topic, we asked some folks who've recently been on either side of a deal to talk, not so much about the current state of deal-making, but about how successful deals come about in today's environment. On the Phoenix panel were Ferolyn Powell, president and CEO of mitral valve company Evalve, which was acquired by Abbott in a $400 million-plus deal, David Clapper, who had sold two companies in the last four years, including most recently surgical device play SurgRx to J&J's Ethicon Endo-Surgery Inc., Scott Huennekens, president and CEO of Volcano Corp., who, from the buy side, has done four acquisitions in the last half dozen years, and Mark Page, from the investment bank Leerink Swann, who at different times sits on both sides of the dealmaking table. In the following panel discussion, adapted from the Phoenix session, these four executives talk about the recent deals they've been part of and some of the decision-making that has informed those deals.
Q: By all measures, the M&A picture in medical devices has been pretty bleak this year, with lower numbers of deals and dollar volumes in 2009 than we've seen in years. What we want to do today is focus less on the current state of dealmaking and, rather, talk about what those companies that are achieving exits—or successfully acquiring others—are seeing in today's market. Ferolyn, let's start with you. Evalve's recent deal with Abbott, for just over $400 million, is one of the biggest deals we've seen this year, particularly for a company without products on the market. Talk to us about what led up to the deal. Evalve had been around for about 10 years; why sell now? Where was Evalve in its development that made this a good time to exit?
Ferolyn Powell:Evalve has been around for a decade, founded back in 1999 by The Foundry, and over the past ten years, we've kept pretty quiet about the technology we were developing and focused instead on collecting clinical data. We didn't want to be very public about what we were doing until we had evidence that the therapy could do what we believed it could. We'd raised four rounds of private capital, totaling $117 million, with the last two rounds including corporate money, $80 million was venture capital. By doing the corporate rounds, we were able to get pretty inexpensive money with minimal strings attached. Over the past several years, we collected the clinical data that helped people in industry see that the product works, with significant economic benefits as well—for example, we were able to demonstrate a 45% reduction in hospitalizations for heart failure in the twelve months post-treatment for high risk patients, compared to the twelve months prior to treatment.
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Companies mentioned in this article
Abbott Laboratories Inc.
Abbott Medical Optics Inc.
Visiogen Inc.
Evalve Inc.
Boston Scientific Corp.
Covidien Ltd.
Hologic Inc.
Johnson & Johnson
Ethicon Endo-Surgery Inc.
Ethicon Inc.
Acclarent Inc.
Medtronic Inc.
Medtronic Ablation Frontiers LLC
Medtronic CoreValve LLC
Volcano Corp.
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