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  • An IMAP Healthcare Team Report

    Medical Equipment and Supplies Report 2013

  • EVERY BUSINESS DAY, SOMEWHERE IN THE WORLD, AN IMAP ADVISOR IS CLOSING AN M&A TRANSACTION

    www.imap.com

    The healthcare sector, breathing life into the M&A market.

    Identifying strategic M&A opportunities wherever they might be in the world takes a world-class adviser. IMAPs international offices can help identify the right opportunities.

  • Page 3

    Ramesh JassalSenior Healthcare AnalystIMAP UK

    Despite the considerable political and economic pressures swirling the globe, M&A activity in the medical equipment and supplies sector continued to hold up well in 2012, largely driven by continued consolidation within the industry, a trend which is expected to continue over the next few years.

    Indeed as we went to print a number of notable deals were completing such as 2ILs purchase of Corin, and Ambus acquisition of King Systems from Consort Medical, for a consideration of 104m. The transaction was valued at 1.9x sales and 14.6x EBIT. Other notable deals announced include: medical device maker Stryker Corporations acquisition of Trauson Holdings Company for 480m; McKessons purchase of PSS World Medical; and the strategic alliance between Medtronic and Life Tech Scientific Corporation. The latter deal brings together the technologies of the worlds largest medical devices company with the local market expertise, brand recognition and growth potential of a recognised leader in the Chinese market.

    As with so many industries it is the emerging markets such as China, Brazil and India (which provides a particular focus in this report) that are key growth areas for the big multinationals in the sector. Stronger economic growth than in the developed world, government reforms, changing consumer lifestyles, and a rising penetration of medical insurance products are all increasing the demand for quality healthcare services in these countries.

    The wider drive towards more inorganic growth across the developed world is also being driven by a number of interlinked factors. High operating costs, rising competition, the need to increase geographical presence in key markets, stringent government regulations, high R&D costs, and pressure on bottom-line performance are just some of the key stimuli.

    Over the next few years we expect a lot of deal activity in fields such as early diagnosis, patient homecare devices, and technologies that provide early detection. Also, expect to see consolidation around technologies that reduce surgical interventions and long hospital stays which in turn reduce waiting times and unnecessary admissions.

    We hope you enjoy the read.

    ContentsOverview .............................................................4

    Global market ....................................................6

    US market ......................................................... 16

    Indian market ..................................................22

    M E D I C A L E Q U I P M E N T A N D S U P P L I E S R E P O R T 2 0 1 3

  • Page 4

    The medical equipment and supplies sector grew by 5.6% in 2011 and is currently worth 214bn. This is forecast to grow to 276bn by 2016. In 2012 the sector saw only marginal revenue growth due to market volatility caused by a range of factors including a decline in private insurance, the public funding squeeze, and reduced demand as individuals and authorities tried to support non-surgical strategies prior to any surgical procedure intervention.

    Demand for medical devices is expected to register different rates of growth between developed markets such as the US and Western Europe, and the emerging markets of Asia-Pacific and Latin America. Strong growth in these latter markets has contributed to an increase in revenue optimism and, as such, the medical equipment and supplies sector continues to generally be a very attractive segment within the broader healthcare sector.

    Overview

    The medical equipment and supplies sector continues to generally be a very attractive segment within the broader healthcare sector."

    In terms of deal activity, with record levels of cash on corporate balance sheets, more than a fifth of companies in the sector have made multiple transactions over the last couple of years. In fact some of these companies have gone on acquisition sprees acquiring four or more companies, such as Covidien, Thermo Fisher Scientific, Boston Scientific Corporation, Medtronic, Stryker Corporation, Teleflex, GE Healthcare, Henry Schein and United Seating & Mobility. One company that stands out is Essilor International which has acquired 14 companies following an aggressive drive into emerging markets.

  • Page 5

    Orthopaedic Implants & Prosthetics Limb, hip, knee, shoulder, ear, nose, throat and mouth implants; jaw prosthetics; and orthopaedic braces, plates, supports and shoes.

    Cardiovascular Stents and pacemakers; cardiovascular equipment, therapies, and medical devices; solutions in cardiovascular disease, soft tissue repair and critical care management;

    cardiology, radiology and vascular surgery devices.

    Neurovascular Implants for neurovascular purposes, electrical stimulations, neurovascular equipment, neuromodulation units, and medical devices for the treatment of neurological diseases.

    Dental Dental equipment and supplies, dental implants and prosthetics, dental imaging systems, dental waxes and mouldings, dental laser systems, and any other dental

    accessories.

    Life Science Tools & Services Any equipment used by laboratories including instruments, glassware and machines. Kits and reagents for life science research, DNA sample storage equipment and

    technology, and products used in protein interaction.

    Patient Monitoring Equipment & Equipment monitoring vital signs e.g. blood pressure monitoring. Imaging equipment Therapies (including medical cameras) e.g. MRI, CT, X-ray, ultrasound. Other patient monitoring products including defibrillators. Remote monitoring products and

    radiography and radiotherapy products.

    Disposable Equipment & Supplies General disposable equipment and supplies including gloves, syringes, catheters, electrodes, bandages, plasters, first-aid kits, sutures, medical register paper,

    drainage bags, feeding bags, and wound management and compression products.

    General Equipment & Supplies Hospital, clinic and outpatient equipment and supplies (including non-disposable durable equipment such as ventilation, patient handling products, rehab and

    medical furniture). Surgical and electrosurgical devices, instruments and apparatus

    including carts, tables and consoles.

    In Vitro Diagnostics, Supplies & Chemistry, microbiology, immunology and genetic tests, diagnostic instruments andEquipment related reagents and test kits including blood diagnostic tests used in the detection and monitoring of diseases and disorders.

    Ophthalmic Goods, Optical Instruments Eye-related products including contact lenses, intraocular lenses, cataract surgical& Lenses devices, eye tracking devices, and laser vision correction products. Ophthalmic instruments, imaging systems and viscoelastic devices. Optical scanners, coherence

    tomography diagnostic devices, and optoelectronic measurement devices.

    Sector splitThe medical equipment and supplies sector can be broken down into the following sub-sectors:

  • Page 6

    Overview China, India and Brazil are the most important emerging markets that will offer the industry the greatest opportunities for future growth.

    The expansion of business activities in emerging markets is being driven by a number of factors including stronger economic growth compared to other regions of the world, government funding and reforms, changing consumer lifestyles, increasing penetration of medical insurance products, and rises in disposable incomes which have increased the demand for quality healthcare services.

    Although concern over the implementation of the Obamacare health reforms in 2013/2014 has reduced growth optimism in the US (the worlds largest market), the growth prospects are still high among developed countries. With an ageing baby boomer population, high unmet medical needs, and an increase in lifestyle diseases (including cardiovascular diseases, diabetes, hypertension, and obesity), the US medical devices industry continues to grow at a brisk pace. Singapore, Taiwan, Hong Kong, South Korea, Germany and Canada are identified as other important regions for growth in the sector.

    Global market

    Market driversThere are several factors driving the market and wider M&A activity:

    Lower procedure volumes In the US high unemployment, the depressed housing market and other factors are causing many people to forego medical procedures that were once considered non-discretionary. Declining procedure volumes are also due to high deductibles and co-pays that patients now pay as part of healthcare insurance plans. The impact of lower procedure volumes has led hospitals to reduce inventory levels which, in turn, backflows through the entire supply chain. Expectations are that as the economy improves, the demand for healthcare will grow significantly due to the ageing population.

    Tighter government budgets Compressed economies limit the funds governments can spend on medical care and innovation. There is a widespread recognition that healthcare costs are out of control in many countries. For instance, the US has yet to come to terms with impending shortfalls in funds necessary to pay for how healthcare is currently delivered. European governments are financially strapped too and in countries li