Tag Archives: acquisitions

Signify Premium Insight: Imaging’s M&A Falling Behind Bullish Outlook for Healthcare & Lifesciences

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Co-written by Steve Holloway

This month, KPMG published its 2022 Healthcare and Life Sciences Investment Outlook. This report assessed the trends in M&A across the breadth of the Healthcare and Life Sciences sectors. These broader market trends form a backdrop to the medical imaging markets, although, as will become evident, the dynamics of these distinct markets are not always shared.

Overall, KPMG’s report was very positive. The professional services firm found that despite the headwinds presented by the coronavirus pandemic, 2020 and 2021 in particular, were very strong on a dealmaking front. There were 1,839 deals (not counting joint ventures, minority investments and venture funding) sealed in 2021, an increase of almost 300 compared to 2019. The most active quarter was Q420, with 511 deals made. No quarter in 2021 topped Q420, but the elevated level was more sustained, with dealmaking at a higher level than any of the preceding eight quarters, spare the aforementioned Q420.

Several drivers spurred this activity. The consultancy identifying the larger vendors’ need to look to acquisitions as a way to sustain innovation and replace lost revenue from maturing products, and portfolio shaping, as two of the key drivers of M&A in 2020 and 2021. KPMG suggested these factors would continue to be a driving force in the coming year and offered a bullish prognosis for 2022, asserting that deal volumes would continue to soar. The firm noted that low cost of capital and internal pressure to deploy capital meant that around 70 percent of respondents to its survey expect to increase their M&A activity in 2022, while more than half of PE investors said they would do at least 10% more deals than 2021. There are still some reasons for caution. Further variants of Covid could lead to vendors scaling back their plans or pausing moves. More predictable factors are also set to temper activity, with a diminishing supply of attractive prospects, and companies’ need to complete and integrate the acquisitions they have already made also set to retard activity.

The Signify View

While these trends may be true for the broader healthcare and lifesciences sector, there is some nuance within individual medical imaging markets. This is true for the large international modality vendors, for example.

One of the central reasons given by KPMG for vendors to embark upon acquisitions is the requirement to expand their portfolios, expand their capability and win new business in other adjacent markets. The large modality vendors, however, already address most of the individual product subsectors, offering providers very broad capability. This means that in many instances, there are limited benefits to be gained from making an acquisition. This is further compounded by the level of consolidation in the medical imaging modality markets. GE, Siemens Healthineers and Philips, have near complete portfolios. Canon’s acquisition of Toshiba and Fujifilm’s acquisition of Hitachi, which both took place since 2017, represented the last opportunity for major, global modality vendors to significantly broaden their portfolios by the acquisition of a competitor with a broadly complementary range.

There are exceptions to this rule, with GE’s 2021 acquisition of BK Medical showing that international modality vendors are still ready to make deals. However, these deals will be predominantly “tuck-in” deals to strengthen a vendor’s core capability in a product sector, such as a vendor with strength or experience in a specific clinical application, or to acquire technology assets and IP that will support the next generation of imaging modality products.

The other predominant deal type will involve moving into adjacent areas. One of the blueprints for this type of acquisition was Siemens Healthineers’ acquisition of Varian in 2020. This deal saw Siemens Healthineers add a market leading oncology therapy and care vendor to its arsenal, enabling the sale of end-to-end oncology solutions which complemented its core imaging and diagnostics focus. Other vendors could be looking to complete similar deals, either in oncology or other segments. KPMG’s warning that few acquisition targets remain rings true in oncology though, with only Elekta and Accuray as viable Varian alternatives for radiation therapy hardware.

Adjacency Approved

More likely, one of the large modality vendors could eye an acquisition of a vendor in another adjacent area, such as entering therapy with a cardiac care acquisition, for example. Another potential avenue for investment would be in surgery. This is a further area where Siemens has already made progress, acquiring surgical robotics specialist Corindus, in 2019. Imaging vendors are already selling into surgical rooms and interventional suites, so the addition of surgical robots, a technology which is rapidly gaining traction, could be a shrewd target for one of the large imaging vendors.

A further possibility would see one of the larger Chinese modality vendors such as Mindray or United Imaging swooping in to bolster their portfolio and presence on an international stage. A previous Premium Insight discussed the rationale for United Imaging making a bid for Siemens’ ultrasound unit based on rumours present at the time. While that hasn’t yet come to pass the, the arguments for a large Chinese vendor to make such an acquisition still stand, with either a larger company’s divestiture, or even a smaller challenger vendor both presenting intriguing possibilities; a combination of Mindray and Butterfly Network, or Exo or another handheld ultrasound vendor, for example.

Buying Power

Outside of modality imaging, there is different impetus for acquisitions. The healthcare IT sector has been one of the more buoyant M&A markets over the past two years. KPMG noted that it was the second most active subsector across the wider healthcare and lifesciences space, and among the most attractive targets for investment at present. The boom in telehealth as a result of the pandemic is responsible for much of this growth, but there have also been a number of high-profile deals done with imaging IT vendors, not least of which are the likes of Nuance and Microsoft and Intelerad’s spree of LumedX, Ambra, and Insignia Medical Systems.

Dealmaking looks likely to continue within the imaging IT sector. It is a market that is mature and stable, with long deal cycles. Resultantly, the opportunities for vendors to increase their market shares organically is limited. Instead, vendors in the imaging IT space look likely to show their hands with tuck-in acquisitions in a bid to increase their market share and enable competition in larger, multi-product deals. This could see many of the smaller players, or those with strength in certain regional markets, increasingly consumed by larger players as they strive to increase their install base in this stable market, or increasingly starved off opportunities and run out of the market.

There are, however, also several larger deals to be done should an acquisitor have the long-term appetite. Change Healthcare’s imaging business could be one prize. Assuming Optum’s takeover of the revenue management business goes ahead and isn’t blocked by regulators, as seems possible given recent rumours, then Change could well look to spin out its imaging business. It is a similar story with IBM Watson Health’s imaging division. Following the divestiture of IBM Watson Health, the imaging business stands apart from the rest of the unit and could subsequently represent an attractive purchase for a vendor looking to expand its customer base and take advantage of IBM’s technology. Both vendors have reasonable market share in the prized US acute provider sector, potentially tempting an acquirer to dig into its pockets to gain a foothold.

AI Gearing up for a Feeding Frenzy?

Perhaps the most keenly observed imaging sector is medical imaging AI, a rapidly evolving and fragmented market that is starting to gather commercial pace. Many leading vendors have identified AI as an area of substantial promise for medical imaging, spurring a torrent of investment from venture capital and private equity. However, despite a gradual thinning of the field and emergence of strong potential candidates (see Medical Imaging’s Top Tier: The $100m Club), no major global imaging vendor has made a big acquisition of an AI vendor or AI orchestration platform yet; in fact, it is an imaging centre provider (RadNet) that has made the most bullish bet on imaging AI so far.

This hesitancy is due to three main fundamentals. Firstly, most vendors are still early in commercialisation and have, to date, no tangible customer base or scale to justify their inflated valuations. Secondly, reimbursement for AI use outside of a few select cases (FFR-CT (HeartFlow), CT-stroke detection (RapidAI, VizAI, et al.) has not been granted, adding greater risk to any investment requiring a long wait and uphill battle for an acquirer to commercialize at scale. Thirdly, healthcare provider customers have not made AI a significant enough priority in recent years to drive leading vendors to bring AI “in-house”. With many applications still in the pilot or assessment stage, a loose association or basic integration with existing imaging IT platforms has satiated most customers. Furthermore, the Covid pandemic has paused or extended many providers’ assessments of AI as a future investment, meaning imaging IT and modality vendors see no rush to dig deep into cash reserves to pay lofty AI valuations.

In 2022, while we expect to see a gradual consolidation of the AI segment via AI vendor to AI vendor mergers and partnerships, the oft-discussed feeding frenzy from imaging sector leaders is highly unlikely. Instead, many will stick to their holding pattern while continuing to strengthen partnerships and planning integration strategies, should the time come to aggressively acquire assets. Given the other market pressures facing the imaging market near term, some may also be holding on in the hope they can sweep up assets as investor confidence in start-up AI vendors falters and vendors burn through cash reserves quickly.

Caveat Emptor

Overall, many parts of the medical imaging market look less ripe for strong M&A activity than the broader healthcare and lifesciences sector. Several vendors have explicitly stated their acquisitive ambitions, and some vendors’ broader strategies into areas such as precision medicine and digital twins would require additional capability, but often these are more linked to the wider company rather than a vendor’s imaging division.

This run of acquisitions could peak in 2022. If these deals are to be done, vendors should focus on doing them quickly. For many of the medical imaging markets, growth is set to peak between 2024 and 2026 as the fruits of the rebound from the coronavirus pandemic, as well as purchasing based on pent-up demand take hold. If vendors are going to use an acquired company to take advantage of this growth, then they will need to do a deal soon.

These deals will happen. They may not be on the scale of some of the deals that have taken place in the past such as the combinations of Fujifilm and Hitachi and Canon and Toshiba, or of a similar complementary nature, but, as vendors look to move forward with their strategies, acquisitions will be a necessary step. However, unlike in KPMG’s assessment of the broader sector, this activity will not be universal, with imaging vendors having to be more selective in approaching what is sometimes a very limited pool of targets. Many vendors have the cash, but the creativity to make the right choices and execution to integrate is what will set them apart.

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This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify ResearchTo view other recent Premium Insights that are part of the service please click here

Signify Premium Insight: GE Healthcare’s New Beginning

This Insight is part of your subscription to Signify Premium Insights – Medical ImagingThis content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify ResearchTo view other recent Premium Insights that are part of the service please click here.

Last week GE made headlines when it announced that it was breaking up into three separate businesses. The firm, which at one time was the world’s largest, revealed that Healthcare will be the first of GE’s business units to be spun off, with the split taking place in early 2023. In separating GE Healthcare from GE’s Aviation and Energy businesses, the company will enjoy greater freedom, despite GE retaining 19.9% ownership of the Healthcare business. This, hopes GE CEO Larry Culp, will give the spinoffs a “greater operational focus” allowing Healthcare, along with the others, to be more flexible in targeting their own specific sectors.

The Signify View

Talk of GE splitting out its healthcare business is nothing new. In 2018, then CEO John Flannery laid out a plan for carving out the conglomerate’s Healthcare unit and establishing it as an independent business. This, he said, would provide the “best environment” for the healthcare business to flourish, and enable it to seek investment and opportunities on its own. Although those plans were shelved with the removal of John Flannery in 2018, the possibilities remain the same. A GE Healthcare unbound by the wider GE enterprise and the hardships it has faced since the 2008 financial crisis is still potent.

This newfound  freedom could, in the near term, be evidenced by the company taking an increasingly acquisitive attitude. Until GE Healthcare’s recent announcement that it had picked up BK Medical for $1.45bn (read our analysis here), the company had not made any significant acquisitions in imaging in more than four years, due in part to belt tightening at a GE corporate level. This recent dearth of acquisitive activity is in contrast to the vendor’s closest competitors, Siemens Healthineers and Philips, which have both bought up a string of companies in recent years. Siemens has picked up several vendors including Medicalis, Corindus and most-recently Varian, a $16bn investment set to be a major growth engine for the business in coming years. Philips meanwhile has also been busy, purchasing Carestream Health in 2019, BioTelemtry in 2020 and Capsule Technologies in 2021 among a number of others.

These acquisitions have enabled Philips and Siemens Healthineers to ready themselves for an increasingly digital future focused around precision medicine in which larger, more comprehensive managed service contracts are the norm. Today, Siemens and Philips are arguably better positioned for growth in the coming decade compared to GE Healthcare, which, despite being innovative internally, remains on the back foot. GE’s separation puts the vendor in a better position to fight on this front and make up lost ground.

One Vision

For this to happen GE Healthcare must establish a vision for its future and commit to a strategy to lead it there. This is another of the commonalities shared by Siemens Healthineers and Philips. For Philips, early in the last decade it saw great potential in the healthcare technology industry. Over time it sold off its other business units so could focus myopically on premium healthcare technology with a very strong emphasis on service and partnerships. Siemens Healthineers meanwhile has always strived to be a master of technical innovation and has focused heavily on precision medicine. That isn’t to say other vendors don’t share the same competencies, but Siemens and Philips have always maintained a certain clarity of vision and market reputation.

At GE Healthcare this focus has been somewhat lacking. This could in part stem from GE Healthcare’s origins in the wider GE conglomerate, which sought success in every corner of industry. GE Healthcare’s approach is similar, with the vendor a reliable performer across the board, yet no clear “leadership” identity in major market sectors. After separating from the wider GE corporation in 2023 however, GE Healthcare would benefit from prioritising and promoting several clear strategic aims. The vendor should commit to exceptional excellence in some areas in which it is already strong, such as radiology, critical care, women’s health and enterprise clinical analytics.  In doing so, and in investing in these areas, GE could foster innovation within the company and help develop areas as significant commercial differentiators compared to competitors.

Less tangibly, GE Healthcare’s release from the broader conglomerate and a clear, new vision for the company to rally around is likely reinvigorate the vendor. GE has endured several difficult years of paying down debt and striving to increase margins. These problems will not disappear, but GE’s other units are likely to bear their brunt. GE Healthcare’s freedom will offer something of a fresh start, with its now unconstrained leadership team able to chart their own course.

 Freedom isn’t Free

There are some sacrifices GE Healthcare will have to make in exchange for its newly found freedom. It could, for example, lose out on some opportunities which see healthcare equipment rolled into, or added onto a deal struck for a completely different industry sector. Some opportunities for major government tenders could have been opened in the past by connections made in deals for products made by GE’s other business units, or chosen on the back of sterling service provided in major tenders for other GE products. Although these deals would not have been common, they were sizable and long-term.

As well as no longer being able to benefit from the wider conglomerate’s reach, Healthcare may also miss its access to GE’s infrastructure. This could be in the form of company-wide software platforms and systems (such as the previously much touted Predix industrial intelligence platform), or supply chains and the economies of scale that may reduce the cost of some of the raw materials or components used in the manufacture of its medical imaging systems and other equipment, for example.

In reality, these are small and not insurmountable prices to pay compared to the possibility offered by the separation. Whether this possibility is being realised, however, will depend on whether GE Healthcare is able to hit certain achievements in the coming years. Speaking of the separation, Larry Culp said it would enable investment in both existing and adjacent markets. This needs to be attended to immediately, with GE investing not only where it is itself strong, but in making acquisitions where it is less prominent. Two obvious areas where acquisitions could significantly bolster the vendor are in the interventional and surgical space, and in digital pathology. The acquisition of BK Medical has added firepower to GE Healthcare’s interventional and surgical ultrasound offering, broadening its capability and helping to round out its portfolio, but there is still more to be done with other modalities. Digital pathology, meanwhile, is set to be a significant growth area in the coming years, and at present, GE lacks strong capability in this space following its earlier acquisition and wind-down of Omnyx.

The Value of Prestige

In addition to clarifying its mission and making several key acquisitions, GE should also aim to establish leadership positions in a select few, high-status areas. While GE is the market leader in a number of segments in terms of installed base, these tend to be in more price competitive markets. GE Healthcare would garner a great deal of cachet and credibility if it were able to assert itself both commercially and technically in one of the more advanced and prestigious market segments.

Broadly, GE’s split emphasises that the golden age of the traditional industrial conglomerate is over. But instead of a death knell, that represents the breaking of a new dawn for GE Healthcare, which now holds its destiny entirely in its own hands. If GE Healthcare can inspire its customers, its employees and its investors, and capitalise on the opportunities available to it, then the vendor is more than capable of not only maintaining its global leadership position in the medical imaging market, but doing so in a way that is more innovative, better addresses the spectrum of customer needs and is ultimately more profitable.


About Signify Premium Insights

This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify ResearchTo view other recent Premium Insights that are part of the service please click here