From M&A to Spin-offs: How Global MedTech Giants Are Reshaping Their Strategies

Previously, Alibaba split into six, followed by Sequoia splitting into three. Now, "splitting...”Has become a buzzword in financial media.

In fact, not only well-known investment institutions and Internet giants, but also world-class medical device companies in the medical field are actively engaged in mergers and acquisitions while continuously pursuing spin-offs or divestitures. Facing a rapidly changing global landscape and volatile markets, troubled giants hope to reverse their sluggish or even negative growth predicaments through spin-offs, paving the way for sustained high growth.

From the past "fiery M&A" to today's "spin-off wave," what trends are implied? How are global device giants adjusting their development strategies? How do their spin-off strategies differ? Which businesses will the device giants divest, and why? Which niche markets will they focus on, and why place their bets there?

Looking back, the development history of every global medical device giant is almost a history of mergers and acquisitions. For instance, Medtronic, the world's top medical device company; Johnson & Johnson, with a history spanning over a century; Danaher, known as the king of acquisitions; Olympus, the leader in soft endoscopes; Stryker, a giant in orthopedics; the "GPS" trio in medical imaging (GE, Philips, Siemens); and the three major players in dialysis (Fresenius, Baxter, and DaVita)...

But now,The global medical device industry, which has undergone dramatic changes and entered a critical turning point, is forcing these giant companies to revise their "aggressive M&A" strategies.On the one hand, as the second-largest market globally, the Chinese market is reshaping the market landscape through methods such as bulk procurement. At the same time, the rise and overseas expansion of Chinese brands are also impacting the position of multinational device giants.

On the other hand, the iteration speed of new products and technologies in the medical device field is accelerating, and many new products and technologies are substitutable for older ones. The application of emerging technologies such as AIGC in healthcare will also impact the original market.

Baxter, which decided to spin off its kidney care and acute treatment businesses into an independent listed company, said: "TodayThe dynamic landscape of the medical device industry is driving companies to make decisions to divest and split.”

Like Baxter, an increasing number of global device giants are changing their "buy-buy-buy" strategy and starting to "split-split-split."。

Among them, some giants have spun off their non-medical businesses, determined to focus on the medical market that transcends cycles and experiences rapid growth.For example, Olympus has gradually divested or spun off its camera business and scientific enterprise business in the past two years to focus on strengthening its leading position in the medical technology industry; Johnson & Johnson divested its consumer goods business to concentrate on healthcare; Philips sold its home appliance business to Hillhouse to expand its leadership in health technology; PerkinElmer (PE) divested its applied, food, and enterprise services businesses, allowing the restructured company to focus more on life sciences and diagnostics...

Another group of giants has chosen to spin off their high-quality medical businesses from the larger conglomerate to accelerate their growth.For example, 3M Company plans to spin off its healthcare business into an independent entity, named 3M Health Care. The food safety segment, currently part of the healthcare business, will also be divested. The standalone 3M Health Care will focus on wound care, dental, health information technology, and biopharmaceutical filtration products.

GE Splits Its Three Major Business Units—Aviation, Healthcare, and Energy—Into Three Independent Public Companies. The newly independent GE Healthcare focuses on precision medicine strategy and encompasses four business units: medical imaging, ultrasound, patient care solutions, and pharmaceutical diagnostics. GE Healthcare went public on NASDAQ on January 4, 2023, with its market value increasing from an initial $27.52 billion to the current $35.37 billion.

For high-quality medical businesses such as GE Healthcare and 3M Health Care, being spun off from a larger group means an independent decision-making level, development strategies more aligned with niche markets, and faster growth. However, it is undeniable that,The spun-off businesses include both rapidly developing segments and inevitable "burdens" that are bound to be left behind.。

For example, according to incomplete statistics from VCBeat, over the past decade, 39 companies have been spun off from 12 global pharmaceutical leaders to develop independently. Among them, 10 have successfully gone public, 8 remain private, 11 have been acquired, and the remaining 10 are either bankrupt or no longer active.

Overall, Baxter, Olympus, Johnson & Johnson, Philips, 3M, GE, BD, Medtronic, Zimmer Biomet, etc.Diversified multinational companies have all split their businesses and moved away from diversification in the past two years. It seems that the trend of giants shifting from scale to refinement and specialization has been set.。

Many companies, due to a large number of employees and complex systems, may experience problems such as bloated institutions, bureaucratic culture, and slow decision-making, known as "big company disease."

For global device giants, continuous acquisitions and a sharp increase in the number of employees have significantly increased the difficulty of company management. At the same time, complex team members, differentiated regional cultures, and other factors make it difficult for these giants to achieve refined management. The intensification of market competition and barriers in niche markets also make it challenging for the giants to promote stable revenue growth across all business areas.

In this case, a spin-off becomes an option. Through the spin-off, independent entities can better leverage their respective strengths. After the spin-off, companies can rely on their independent management and decision-making levels to reduce complex procedures, improve management efficiency, enhance resource allocation capabilities, and enable independent companies to focus more on core businesses, formulate development strategies that align with their specific segments, and achieve sustainable growth.

Although they all involve spin-offs and divestitures, the spin-off strategies of each giant are different and contain hidden complexities.

First, after divesting businesses with significantly different characteristics, Zimmer Biomet, the global orthopedic giant, achieved a 1500% year-over-year increase in net profit.In 2022, Zimmer Biomet spun off its spine, dental, and bone healing businesses into a new independent public company, ZimVie, based on considerations of the financial performance and business nature of its product lines.

Li Yongming, President of Zimmer Biomet Greater China, said in a media interview: "The main consideration for spinning off the dental business is the significant difference in business nature, as the dental business serves more clinics than public hospitals. The spin-off aims to allow the orthopedics and dental businesses to develop in their respective forms, enabling our existing businesses to focus more, perform better, and grow faster."

After the spin-off, Zimmer Biomet will continue to lead in the orthopedics segment, covering areas such as knee, hip, sports medicine, extremities and trauma, as well as craniomaxillofacial and thoracic, while further optimizing strategic focus and improving operational efficiency.

From the perspective of financial performance and business growth, Zimmer Biomet has indeed achieved a breakthrough after the spin-off. According to its Q1 2023 earnings report, Zimmer Biomet achieved revenue of $1.831 billion, a year-over-year increase of 10.09%; net profit was $233 million, a year-over-year increase of 1516.67%.

At the same time, after spinning off its spine and dental businesses, Zimmer Biomet transitioned towards becoming a "comprehensive solution provider for digital orthopedics" and accelerated this transformation by acquiring corresponding target companies. At the beginning of January, Zimmer Biomet announced the acquisition of Embody, a medical device company focused on soft tissue healing, for $155 million. In early May, Zimmer Biomet announced the acquisition of Ossis, a manufacturer of personalized 3D-printed implants.

Zimmer Biomet Chairman Bryan Hanson pointed out: "The acquisition of Embody is an important step in Zimmer Biomet's ongoing strategic transformation and a significant move in executing our strategic priorities to drive long-term growth and value creation."

Second, spin off high-quality business units to create another giant.In January 2023, Baxter, known as one of the "dialysis giants" alongside Fresenius and DeWitt, announced its future strategic roadmap: planning to spin off and merge its renal care and acute treatment businesses into a standalone publicly listed company.

It is reported that the Renal Care business is Baxter's largest business unit, generating approximately $3.9 billion in revenue in the fiscal year 2021. The Renal Care and Acute Therapies businesses together brought in about $5 billion in revenue for Baxter in the fiscal year 2021, accounting for approximately 39% of the company's total revenue.

The newly split-off company will focus on the development and sales of products such as peritoneal dialysis and hemodialysis. The market size of the industry in which the new company is expected to operate after the split will reach 15 billion US dollars, and the market will grow by 3% to 4% in the next three years.

Baxter believes that as an independent entity, the new renal care company will have its own investment and management priorities, and will be better positioned to seek growth opportunities and invest in innovation.

Not only Baxter, but BD also spun off its diabetes care business into a standalone public company named Embecta. To date, Embecta has become one of the largest pure diabetes management companies in the world, with manufacturing bases in the United States, Ireland, and China.

BD CEO Tom Polen said, "Both BD and Embecta will deliver greater long-term value to shareholders while providing impactful solutions to improve the future of healthcare."

Whether it is the new renal care company spun off from Baxter or Embecta from BD, both are in a large and rapidly growing market, with the potential to become new global device giants in the future.

Third, divest other businesses, optimize strategic layout, and focus on high-growth potential markets.Previously, Danaher successively spun off its industrial technology business, dental business, and environmental and applied testing divisions into separate public listings to further focus on life sciences and medical diagnostics. At the same time, Danaher optimized its assets and expanded into promising markets. For instance, it acquired next-generation sequencing (NGS) assay products for research at the end of 2022; integrated Cytiva and Pall into an $8.5 billion biotechnology group to create an end-to-end service system covering everything from biomolecule development to clinical trials and commercialization.

Apart from Danaher, Medtronic is also focusing on areas with higher strategic priority (high growth potential). In 2022, Medtronic planned to spin off three divisions, including establishing a joint venture with dialysis giant DaVita by spinning off its dialysis business; and spinning off its respiratory interventions and patient monitoring businesses into a new company.

Currently, Medtronic has launched a new renal care subsidiary, Mozarc Medical, with Devita in April 2023; media reports indicate that GE Healthcare and ICU Medical are both interested in acquiring businesses related to respiratory intervention and patient monitoring.

Medtronic CEO Jeff Martha said, "We plan to invest more funds into areas with high growth and high return opportunities, including structural heart, neurovascular, cardiac ablation solutions, surgical robotics, and diabetes. This is where we are truly focused and represents a market for long-term future growth."

Looking back at the development history of global device giants, they have always been able to divest low-growth or negative-growth sunset industries and shift towards high-growth golden tracks.

For example, Johnson & Johnson, with a history spanning over a century, gradually expanded from its initial suture business into high-growth areas such as consumer healthcare, orthopedics, surgery, ophthalmology, interventional procedures, and pharmaceuticals; Abbott, at 135 years old, started as a small pharmaceutical factory and later made significant investments in diagnostics, diabetes care, cardiovascular, and neuromodulation businesses. Notably, these niche markets, once heavily invested in by industry giants, have since become the primary drivers of revenue growth for these major companies.

Now,Facing the rapidly changing global medical device market, giant companies are divesting traditional businesses while acquiring emerging technologies or promising enterprises to optimize strategic layouts and accelerate strategic transformation.。

After reviewing the layouts of many multinational device giants, VCBeat found that today's giants favor the following three fields.

So far, among the global device giants, eight major players including Medtronic, Johnson & Johnson, Stryker, Smith & Nephew, Zimmer Biomet, Olympus, Intuitive Surgical, and Siemens Healthineers are all strategically positioning themselves in surgical robotics.

Despite the presence of the commercially available da Vinci surgical robot for over 20 years, Medtronic believes that the current global penetration rate of laparoscopic surgical robots is only 3%, indicating a vast potential market in the future.

Other giants are developing surgical robot technology based on their existing advantageous businesses. For example, orthopedic giants such as Stryker, Smith & Nephew, and Zimmer Biomet have all laid out plans for orthopedic surgical robots; endoscope leader Olympus has arranged for natural orifice surgical robots...

The reason for the layout of surgical robots is that they align with the trend towards precision, intelligence, and automation in surgical procedures. As a carrier-grade product, surgical robots will, in the future, be used alongside a series of accompanying instruments. Similar to the relationship between apps and smartphones, major device giants do not wish to be "held back" by underlying technology platforms; instead, they all aspire to be the ones providing the platform.

Based on this important strategic significance, surgical robots have become a battleground for major device giants.

Unlike surgical robots with strategic significance, pulsed field ablation (PFA) technology has attracted the attention of many industry giants mainly due to its disruptive nature.

As an emerging technology in the billion-dollar electrophysiology market, PFA differs from commonly used radiofrequency ablation and cryoablation, offering advantages such as simple operation and high safety. Reportedly, PFA leverages the characteristic of "tissue selectivity" to specifically ablate myocardial tissue cells while avoiding damage to adjacent tissues such as blood vessels, nerves, muscles, and mucous membranes outside the heart. Additionally, with the feature of "non-thermal ablation," it does not cause heat-related injuries to the ablation site.

Based on the advantages of PFA over radiofrequency ablation and cryoablation, it is considered a revolutionary new ablation technology and is expected to become the mainstream ablation technology in the future.

In response, Boston Scientific acquired Farapulse for $295 million, and Medtronic acquired Affera for nearly $1 billion, each securing their entry into the PFA field. Additionally, Johnson & Johnson also entered this赛道, with its subsidiary Biosense Webster simultaneously developing PFA products.

As of now, only Boston Scientific's Farapulse PFA product and Medtronic's Affera Sphere pulsed field ablation product have received EU CE certification in 2021 and 2023, respectively.

From the market and technical perspectives, global device giants are also very optimistic about intracardiac echocardiography (ICE).

It is reported that intracardiac echocardiography is an innovative echocardiographic diagnostic technology. It places the ultrasound probe inside the heart chambers to emit and receive ultrasound signals, enabling real-time imaging of cardiac anatomical structures, cardiac hemodynamics, and cardiac functions. Currently, intracardiac echocardiography has been applied in various procedures such as atrial fibrillation radiofrequency ablation, left atrial appendage closure, atrial septal defect closure, mitral valve repair, and endomyocardial biopsy, showing great market potential.

In the global market, giants such as Siemens Healthineers, Philips, Johnson & Johnson, Abbott, Boston Scientific, and GE Healthcare have all ventured into intracardiac echocardiography and have upgraded innovative 3D intracardiac echocardiography products. For example, Philips launched the VeriSight Pro 3D ICE catheter, while Johnson & Johnson introduced the SoundStar 3D intracardiac echocardiography catheter…

In fact, not only surgical robots, pulsed electric field ablation, and intracardiac ultrasound, but global device giants have also strategically focused on key areas such as diabetes (insulin pumps and CGM), renal denervation (RDN), artificial hearts, and total laboratory automation (TLA).

Believe that these细分 markets heavily布局 by global device giants will迎来 rapid growth in the future. This will also bring development confidence to domestic companies in the same field.