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According to our estimates, orthopedic merger and acquisition activity accelerated in 2023. This represents the first time that activity has increased year-over-year since 2020. Per our Orthopedic M&A Tracker, 29 deals occurred in 2023.
While orthopedic M&A reversed its decline this year, it fell well short of the level we saw immediately before and during the pandemic. Those trends track closely with medtech in general. Orthopedics outclasses general medtech, however, in M&A activity and valuations.
Speaking recently at MNVC, Charles Hamilton, Managing Director of Piper Sandler, said that orthopedic M&A accounts for 25% of all medtech deals. In comparison, orthopedics represents just 14% of the total addressable market for medtech devices. Likewise, the median medtech M&A multiple over the last decade is 3.8 times the last twelve months (LTM) of revenue. In orthopedics, the median multiple climbs to 5.5 times LTM revenue.
Quality assets command a premium in medtech. The top quartile saw multiples more than twice the median. In orthopedics, valuations have remained higher than usual through 2023.
“The landscape is pretty rich with targets. Valuations in some cases have come down, which is not a bad thing. But on the other hand, interest rates have gone up. So the hurdle height to achieve the right level of financials is raised a little bit,” said Stryker CEO Kevin Lobo.
Tale of Two Cities
Interest in orthopedic M&A remains robust, and buyers continue to work on deals. However, targets are now largely split into two camps: commercial stage or highly differentiated with a path to market adoption.
“The vast majority of these deals are commercial stage or, at minimum, commercially leverageable technologies,” said Mr. Hamilton. “It is kind of a tale of two cities. Commercial stage; immediately accretive to growth, gross margin, and EPS. On the earlier side, it is high differentiation, proprietary technology, but with the clinical evidence that will support broad market adoption.”
A survey of recent orthopedic M&A shows the same trend toward commercialized targets. Enovis’ deals for LimaCorporate, Novastep and Mathys all fit the profile.
Seeking Profitable Adjacencies
Spine is still the most active orthopedic M&A segment. It accounted for nearly 30% of all M&A deals we covered since 2016. In recent years, however, deals for foot and ankle companies and regenerative technologies have become more common. CONMED, a mainstay in the sports medicine market, expanded its portfolio in those areas by acquiring In2Bones and Biorez in 2022.
Over the past eight years, CONMED has deployed about a billion dollars in acquisition capital, mostly in its general surgery business. The company was ready in 2022 when it found an opportunity to improve its orthopedics franchise.
“In2Bones was a concerted effort to marry up our sports medicine business with a foot and ankle franchise,” said Pete Shagory, CONMED’s Executive Vice President. “We’ve felt for a number of years that we wanted to have a strategic adjacency in foot and ankle. There’s a lot of synergy there.”
Later that year, CONMED bolstered another fast-growing area of its sports medicine portfolio with the purchase of Biorez. Companies across sports medicine, including globalized strategics, increasingly seek differentiated soft tissue argumentation technologies.
A New Class of Buyer
While Stryker and its globalized peers will continue ranking at the top of M&A activity, Charles Hamilton said that the market is seeing a “new class of buyer” emerge in names like Enovis and OrthoPediatrics. Since 2020, those companies have been in the top five for orthopedic acquisitions.
Enovis relied on the acquisitive lineage of its leaders and a proven integration playbook to close in on $1 billion in orthopedic sales by the end of 2024. OrthoPediatrics is using M&A to further cement its leadership in a pediatric market that is underserved by the largest players.
Expectations for 2024
We expect orthopedic M&A deal volume will remain in line with recent years, seeing between 20 and 25 transactions. Higher input costs for buyers and the relative scarcity of high-quality, commercial-ready targets will likely keep deal volumes from appreciable growth until sometime in 2025.
According to our estimates, orthopedic merger and acquisition activity accelerated in 2023. This represents the first time that activity has increased year-over-year since 2020. Per our Orthopedic M&A Tracker, 29 deals occurred in 2023.
While orthopedic M&A reversed its decline this year, it fell well short of the level we saw...
According to our estimates, orthopedic merger and acquisition activity accelerated in 2023. This represents the first time that activity has increased year-over-year since 2020. Per our Orthopedic M&A Tracker, 29 deals occurred in 2023.
While orthopedic M&A reversed its decline this year, it fell well short of the level we saw immediately before and during the pandemic. Those trends track closely with medtech in general. Orthopedics outclasses general medtech, however, in M&A activity and valuations.
Speaking recently at MNVC, Charles Hamilton, Managing Director of Piper Sandler, said that orthopedic M&A accounts for 25% of all medtech deals. In comparison, orthopedics represents just 14% of the total addressable market for medtech devices. Likewise, the median medtech M&A multiple over the last decade is 3.8 times the last twelve months (LTM) of revenue. In orthopedics, the median multiple climbs to 5.5 times LTM revenue.
Quality assets command a premium in medtech. The top quartile saw multiples more than twice the median. In orthopedics, valuations have remained higher than usual through 2023.
“The landscape is pretty rich with targets. Valuations in some cases have come down, which is not a bad thing. But on the other hand, interest rates have gone up. So the hurdle height to achieve the right level of financials is raised a little bit,” said Stryker CEO Kevin Lobo.
Tale of Two Cities
Interest in orthopedic M&A remains robust, and buyers continue to work on deals. However, targets are now largely split into two camps: commercial stage or highly differentiated with a path to market adoption.
“The vast majority of these deals are commercial stage or, at minimum, commercially leverageable technologies,” said Mr. Hamilton. “It is kind of a tale of two cities. Commercial stage; immediately accretive to growth, gross margin, and EPS. On the earlier side, it is high differentiation, proprietary technology, but with the clinical evidence that will support broad market adoption.”
A survey of recent orthopedic M&A shows the same trend toward commercialized targets. Enovis’ deals for LimaCorporate, Novastep and Mathys all fit the profile.
Seeking Profitable Adjacencies
Spine is still the most active orthopedic M&A segment. It accounted for nearly 30% of all M&A deals we covered since 2016. In recent years, however, deals for foot and ankle companies and regenerative technologies have become more common. CONMED, a mainstay in the sports medicine market, expanded its portfolio in those areas by acquiring In2Bones and Biorez in 2022.
Over the past eight years, CONMED has deployed about a billion dollars in acquisition capital, mostly in its general surgery business. The company was ready in 2022 when it found an opportunity to improve its orthopedics franchise.
“In2Bones was a concerted effort to marry up our sports medicine business with a foot and ankle franchise,” said Pete Shagory, CONMED’s Executive Vice President. “We’ve felt for a number of years that we wanted to have a strategic adjacency in foot and ankle. There’s a lot of synergy there.”
Later that year, CONMED bolstered another fast-growing area of its sports medicine portfolio with the purchase of Biorez. Companies across sports medicine, including globalized strategics, increasingly seek differentiated soft tissue argumentation technologies.
A New Class of Buyer
While Stryker and its globalized peers will continue ranking at the top of M&A activity, Charles Hamilton said that the market is seeing a “new class of buyer” emerge in names like Enovis and OrthoPediatrics. Since 2020, those companies have been in the top five for orthopedic acquisitions.
Enovis relied on the acquisitive lineage of its leaders and a proven integration playbook to close in on $1 billion in orthopedic sales by the end of 2024. OrthoPediatrics is using M&A to further cement its leadership in a pediatric market that is underserved by the largest players.
Expectations for 2024
We expect orthopedic M&A deal volume will remain in line with recent years, seeing between 20 and 25 transactions. Higher input costs for buyers and the relative scarcity of high-quality, commercial-ready targets will likely keep deal volumes from appreciable growth until sometime in 2025.
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ME
Mike Evers is a Senior Market Analyst and writer with over 15 years of experience in the medical industry, spanning cardiac rhythm management, ER coding and billing, and orthopedics. He joined ORTHOWORLD in 2018, where he provides market analysis and editorial coverage.
