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VC flocks to quality amid tepid med tech deal landscape

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Illustration: Brendan Lynch/Axios

While deal value for VC med tech investments trended upward last quarter, deal volume slumped, according to a recent PitchBook report.

Why it matters: The discrepancy is a reflection that venture funding is harder to come by as VC investors prioritize higher-quality investments, according to PitchBook analyst Aaron DeGagne.

What's happening: Q3 venture capital activity in med tech totaled $3.2 billion, a 14.1% increase in deal value from the prior quarter, per the report.

Yes, but: The deal count in VC was 187, down 10.1% from Q2.

  • Although deal value rose for the second straight quarter, the deal count reached a new, multi-year low.

Zoom in: Top VC-led med tech deals in the quarter included Elon Musk's brain implant business Neuralink, which raised a $280 million Series D led by Peter Thiel's Founders fund

  • Surgical robotics company CMR Surgical raised $165 million from existing investors, while cancer diagnostic company Harbinger Health corralled new investors Pictet, Partners Investment, and Catalyst for its $140 million Series B.

Meanwhile, in the PE world, growth deal activity came out to $280 million —plummeting nearly 70% year over year.

  • PE deal count accumulated 37 deals, a drop off of 3.3% from the year earlier.

But, but, but: Private equity has been seemingly driving large-stage dealmaking in med tech, with Advent International and Warburg Pincus agreeing to acquire Baxter International's biopharma solutions unit for $4.25 billion in May.

  • In September, Carlyle was reported to be in exclusive talks for a $7 billion-plus deal to acquire Medtronic's patient monitoring and respiratory interventions businesses.

What they're saying: "Exit opportunities remain few and far between as the IPO market remains shut and potential acquirers continue to prioritize improving their own cost structures," writes DeGagne.

  • "Large mergers have recently fallen out of favor, and addition by subtraction remains the name of the game," he says.

What's next: DeGagne says he expects "historically low M&A activity continue into 2024," although he notes newly independent companies could start making consolidation moves.

  • For example, GE HealthCare, which spun out in January, reported Q3 2023 earnings that emphasized product integration opportunities for AI-powered medical imaging.
  • "It would be logical to expect the firm to consider acquisitions to further grow this business over the years ahead," DeGagne writes.
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