It may not be the most favored or famous Shakespeare play (reputedly unpopular even in the Bard’s day), but “All’s Well That Ends Well” certainly is rife with familiar quotes.
 
Among the more notable lines from the five-act comedy—besides the title—are “Love all, trust a few, do wrong to none…” “No legacy is so rich as honesty,” and “Good alone is good without a name, vileness is so.”
 
There’s another line, however, that’s far less prominent but nevertheless applicable to 21st century living: “…Oft expectation fails and most oft there; Where most it promises, and oft it hits; Where hope is coldest and despair most fits.”
 
Translation? Great expectations beget great disappointments.
 
All too true.
 
Consider, for example, the past year in medtech M&A. Analysts expected deal volume and value to bounce back significantly in 2023 after falling sharply last year from 2021’s exceptionally high levels.
 
That logic was based on the strong balance sheets diagnostics companies built from COVID-19 testing and vaccine revenue as well as “opportunistic equity and debt raises” resulting from low interest rates, MM+M (Medical Marketing and Media) reported.
 
“With this backdrop in mind, the conditions appear ripe for a return to historical M&A activity in 2023 and 2024 despite elevated interest rates as large-cap names in LST [life science tools] and Dx seek to deploy their cash balance or lever themselves for the appropriate asset (public or private),” predicted an SVB Securities report published earlier this year. Also contributing to SVB’s dealmaking optimism was the life sciences industry’s limited ability to raise capital and falling multiples, MM+M noted.
 
Great expectations.
 
But those falling multiples, capital-raising difficulties, and huge cash balances failed to restore medtech merger and acquisition activity to its former glory. In H1 2023, venture financing suffered its worst showing in eight years and public exits stopped altogether, pushing transaction dollars and tallies toward historic lows.
 
Great disappointment.
 
While deal volume was strong through June 30 (42 total), overall M&A value was down significantly from last year and exponentially from 2021, data from several industry sources show. Buyers poured $13.1 billion into agreements during the first six months of 2023—a paltry start compared to the previous two years’ totals ($64.8 billion in 2022, $80.5 billion in 2021).
 
Analysts and M&A advisors attribute this year’s leaner deal value total to the lack of megamergers—i.e., the blockbuster marriages between juggernauts like Zimmer Holdings and Biomet, Stryker Corp. and Wright Medical, DePuy Orthopaedics and Synthes Holding AG, and Orthofix and SeaSpine, among others.
 
“There’s not as many of the megadeals that have taken place—the larger strategics combining. There’s some of that going on, like Globus just combined with NuVasive but they were smaller companies comparatively, if you think about some of the previous years where Becton Dickinson bought out Bard and Medtronic bought out Covidien,” Dave Sheppard, managing director and COO of M&A advisory firm MedWorld Advisors, noted in a Sept. 27 webinar. “The value of deals may be less but the actual volume of deals is continuing to be very strong. They are very focused strategic deals and very opportunistic for private equity as well.”
 
While lingering inflation, rising interest rates, and recession fears certainly unnerved buyers this year, regulatory concerns and integration issues likely were greater obstacles to sizable acquisitions. Companies initiating megadeals will often divest parts of the business that no longer strategically fit into the combined entity’s future growth plan, M&A advisors note.
 
Such a strategy, of course, is not exclusive to big spenders. Small companies also divest business units to reduce operating costs and better focus on core competencies. Bioventus and Surgalign, for example, both downsized this year to tame mounting debt loads.
 
Bioventus sold its wound care business for $85 million to bio-implant developer LifeNet Health, maker of its TheraGenesis and TheraSkin skin substitutes. Bioventus used the $30 million in net proceeds from the May sale to help dilute its $445 million debt, part of which the company attributed to its growing operating loss from its failed CartiHeal deal, a market capitalization decline, restructuring and compensation costs, and acquisition-related expenses.
 
“The sale of our Wound business will enhance our liquidity,” interim Bioventus CEO Tony Bihl said in announcing the divestiture, “and enable a greater focus on execution.”
 
A lack of liquidity drove bankrupt Surgalign Holdings in July to sell its hardware and biologics assets to Xtant Medical Holdings and its digital health offerings to Augmedics Inc. for nearly $6 million (combined). Surgalign’s portfolio proved popular with Xtant, which purchased the financially troubled firm’s Coflex and Cofix product lines in March for $17 million. Coflex is a titanium implant placed between vertebrae to treat lumbar spinal stenosis, and Cofix is used to ease lower back pain from intervertebral disc degeneration.
 
Cost savings weren’t as much of a factor as reprioritized focus for Centinel Spine and Elutia Inc. The former sacrificed its global fusion business in September for total disc replacement market share, while the latter traded its orthobiologics lineup for proprietary drug-eluting biomatrix prowess.
 
Elutia’s $35 million divestiture price tag was typical amongst 2023 deals for lack of the larger mega-mergers that epitomized years past. There were only two transactions totaling $1 billion or more within the last 12 months—the $3.1 billion union of Globus Medical Inc. and NuVasive Inc. (February); and AMETEK’s $1.9 billion purchase of Paragon Medical (October). The year’s other “large” transactions pale by comparison: Enovis’s $847 million bid for LimaCorporate and Zimmer Biomet Holdings Inc.’s $155 million acquisition of collagen implant maker Embody Inc.
 
“We’ve seen some large deals,” Medword Advisors President Florence Joffroy Black explained in the webinar, “but the focus right now is on quality mid-market deals and strategic acquisitions rather than the big multi-billion-dollar deals that we’ve seen in the past.”
 
There were plenty of those mid-market deals and strategic acquisitions this year in orthopedics: Tyber Medical’s buyout of ADSM-Synchro Medical, Avanos Medical’s purchase of Diros Technology, Restor3d’s pickup of Conformis, Zavation Medical Products’ deal for CoreLink, Intech’s pairing with Lenkbar, Paragon Medical’s acquisition of Whitmet Inc., and ARCH Medical Solutions’ takeover of gSource LLC.
 
“Mid-market deals are in more demand than ever,” Joffroy-Black said. “It’s definitely the sweet spot for M&A without a doubt.”
 
And the path to sweeter profits, for sure.
 
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