VC flocks to quality amid tepid med tech deal landscape
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.