As M&A practitioners, we follow developments from all major medtech companies—MPO’s Top 30 strategics—on a regular basis. We are pleased with portfolio divestments wary of mergers. Blockbuster deals can be a bit alarming because they reduce the overall number of major companies, which in turn, results in fewer technology-based or strategic growth-related acquisitions. These deals mostly affect early-stage companies, many of which exist solely for acquisition purposes.
Taking a major company off the market not only shrinks the available OEM pool, it also curtails innovation and expurgates jobs. It will be quite interesting to watch the recently announced Globus Medical Inc.-Nuvasive Inc. marriage evolve. Interestingly, fewer mergers and acquisitions have taken place in the post-pandemic world, but the decline defies a clear explanation. The abatement could be partly driven by market dynamics and partly driven by the Biden administration’s regulatory mindset. Regardless of the reason, however, market control should not be tendered to a select few medtech companies.
“Portfolio adjustments,” on the other hand, are beneficial for the industry. Otherwise known as divestitures, these corporate spinoffs often beget fresh thinking, a unique approach to innovation, and more risk-taking.
Executives at a divested company often need permission from their corporate parent before initiating a separation plan. Such protocol likely was followed in the following divestiture examples.
Johnson and Johnson: MPO’s No. 3 top company announced plans last year to spin out its Consumer Healthcare division to segregate those products from the rest of its medical portfolio. Recently renamed Kenvue, watch for this publicly traded company to expand its retail presence and add new brands to its lineup over the next several years. With Kenvue operating independently, J&J can become more focused on its remaining operating divisions—Pharmaceutical and MedTech. Expect more aggressive moves from J&J’s Pharma, Ethicon, DePuy Synthes, and newly acquired Abiomed franchises. The latter division, in fact, would probably not exist without the Consumer Health divestiture.
GE HealthCare (GEHC): GE HealthCare ushered in a new era upon its official independence from its corporate parent on Jan. 4. President/CEO Peter Arduini stated, “We are on the verge of true industry transformation as digital innovation reshapes the experience of patients and providers with an increased need for more precise, connected, and efficient care.” Simply stated, GE will be a more active player in the digital health space both organically and inorganically. As mentioned earlier, every portfolio change creates a new opportunity.
One of GEHC’s more immediate benefits is renewed investment for internal innovation development. This is likely one of many subtle in-house changes; some obvious external moves include GEHC’s relatively rapid decisions to deploy additional resources and financing toward artificial intelligence (AI). The most recent (as of press time) is the Caption Health acquisition, which enables GEHC to interpret heart ultrasound exams through AI algorithms. Expect more AI-related moves from GEHC in the next few years.
Medtronic: The world’s largest medical device provider is planning to spin off its respiratory and patient monitoring business, which includes products for monitoring patients’ vital signs in hospitals and other healthcare settings as well as ventilators and other complementary critical care supply products. Since most of Medtronic’s overall business solutions involve sales of high-margin disposable devices, it is not surprising the company sold its ventilator group. Before the pandemic, industry analysts expected the divestiture to occur in 2020 or 2021 but Medtronic thankfully (and wisely) postponed the sale during COVID-19 to reload the world’s ventilator stockpile. The move makes more sense now as COVID-19 transitions to an endemic stage. The divestiture will allow Medtronic to focus on its core contepencies while giving the patient monitoring and respiratory business greater flexibility to craft its own growth and strategic priorities. Like J&J and GEHC, this divestiture will create more nimble companies, for both Medtronic and the newly independent patient monitoring and respiratory business (NewCo). Expect Medtronic this year to continue investing in its remaining business groups. NewCo, however, will be in somewhat of a holding pattern until the spinout actually occurs either in late 2023 or early 2024. It remains to be seen whether NewCo at that point will commence innovation on its own, purchase it, or be acquired by GEHC, Philips N.V., Siemens Healthineers, or another industry giant with appropriate gaps in their portfolios.
3M Healthcare: In a similar move to GE/GE HealthCare, 3M announced last year its intent to spin off 3M Healthcare in 2023. An estimated $8 billion company, 3M Healthcare specializes in a wide range of products, including medical tapes, dressings, wound care, and drug delivery systems. Once this divestiture is complete, 3M will likely get more aggressive in creating and/or acquiring innovation in the digital health and wound care markets, among others.
Baxter International: Baxter is making multiple interesting moves at once. First, the Glenview, Ill.-based multinational plans to spin off its renal care and acute therapies businesses into a separately traded public company later this year or early next year. As is the case with 3M Healthcare, the divestiture should bring about new innovations and investments for Baxter’s “NewCo” once it becomes its own entity.
In the meantime, Baxter is immediately shifting to a new operating model designed to give the company more operating efficiencies as well as market focus for its remaining businesses. In doing so, the company will end up with three new business units: medical products and therapies; healthcare systems and technologies; and pharmaceuticals. In our opinion, these newly focused business groups will have a positive impact on innovation in each of their respective market segments. While CEO Joe Almeida is not afraid to cut staff as needed for organizational profitability, he also is willing to invest in or acquire innovation if he believes it will help his stakeholder objectives.
In summary, these industry portfolio moves (divestitures) may create some short-term disruption. But in the long-run, the new organizations created will be more nimble, effective, and focused on innovations that will enhance the medtech industry’s growth—which benefits both stakeholders and patients.