By: Richard Park

“From our perspective, the M&A environment has remained vibrant in the IVD industry through the recession,” says Jeff Ellis, managing director at Crosstree Capital Partners Inc. (Tampa, FL). “Certainly there are not as many mega mergers going on, but we believe this is primarily because most of that consolidation has already taken place. Aside from the mega mergers, there remains a steady level of middle-market activity driven by mid-sized IVD companies seeking to expand product lines and geographies, and larger companies vying to secure emerging molecular diagnostics technologies. We also believe the levels of venture capital and private equity interest in IVDs are as strong as we have ever seen it. Overall, we have found the IVD sector to be resilient and expect the same M&A themes to continue into 2010.”

 

Ashim Anand, PhD, an analyst, medical devices and diagnostics, at Natixis Bleichroeder LLC (New York) agrees that like the healthcare industry as a whole, the IVD industry should see decent M&A activity in 2010. Anand says the factors that will contribute to such activity include the following:

 

 

Other IVD companies will try to diversify their exposure within the industry.

 

Finally, there are reasons for M&A which are common to the whole healthcare industry: cheap valuations, credit crises causing bankruptcies or near bankruptcies, and drying up of the IPO market.

 

Some analysts believe that the primary motivation for acquisitions in the IVD industry this year will be strategic considerations.

 

“From my business perspective, it is clear that M&A related activities have been accelerating since September 2009,” says Manfred Scholz, PhD, MBA, president, Scholz Consulting Partner LLC (Medford, MA). “Considering that M&A deals from discussion to closing on average take about nine months, I expect to see the deal closing rate to pick up in the second quarter of 2010. We already have recently seen a number of deals making it to closing. The acquiring companies included Abbott, bioMerieux, Danaher, Inverness, Quidel, and Thermo Fisher.

 

“The big difference for the 2010 deals is the strategic implications. Some deals in 2009 happened opportunistically as market cap drops resulted in good deals, such as the Monogram acquisition by LabCorp. But in 2010, it seems M&A will be driven by strategically motivated buyers. Buyers look for missing pieces in their portfolios. The target could be a technology piece, a new application, or just top-line growth. Furthermore, U.S. assets are cheaper than they have been in a long time, although they are still far from cheap if they are not distressed. This means that foreign buyers may find many opportunities in the United States. 2010 should set new M&A records based on deal numbers, but not on deal size.”

Other analysts believe that the continuing emergence of personalized medicine will play a role in influencing acquisitions in the IVD industry.

 

“We expect M&A activity in the IVD industry to remain high in 2010,” says Harry Glorikian, managing partner, Scientia Advisors (Cambridge, MA). “Several niche players were acquired last year for more than $100 million. For example, BD topped the list with its $275 million acquisition of HandyLab. Other notables include Qiagen’s purchase of DxS and LabCorp’s purchase of Monogram BioScience, both of which are intended to bolster standing in personalized medicine, an important healthcare trend that is gaining momentum. Medco’s recent acquisition of DNA Direct and CVS’s investment in Generation Health are important activities that will not only influence the personalized medicine movement but also affect the adoption of IVDs. Gen-Probe’s acquisition of Tepnel is an important move for the company to expand its molecular diagnostics presence. Quidel’s recent acquisition of Diagnostic Hybrids falls into a similar light.

 

“We also believe that emerging markets such as China and Korea will continue to spur a myriad of high value acquisitions such as Inverness Medical’s recent move to acquire Standard Diagnostics in Korea, and bioMerieux’s recent move to acquire Meikang Biotech in China. But this is just the beginning. We expect more M&A to take place, and we do expect the IVD industry to undergo a great deal of change in the next 2–3 years.”