One Blockbuster Dies and Another Arises as Sluggish Deal Making Continues

The decline in diagnostic M&A activity is reflective of what’s been happening across the entire healthcare industry, with deals from down 20% during Q2, as compared to Q1 2020, according to consulting firm SOLIC Capital. The dip is even more pronounced on a year-over-year basis, with a decrease of 34%, only 322 M&A transactions in Q2 of this year, versus 486 in Q2 2019.

The obvious explanation for the trend is the COVID-19 pandemic, which is also the reason why eHealth was the most robust sector of the industry for M&A with 50 transactions, or 15% of total deal volume in the quarter. Meanwhile, deal making in the senior-care sector hit a seven-year low.

Lab Sector M&A Trends

After a relatively slow 2019, 2020 was expected to be a very active year for M&A in the labs sector with both major acquirers, Quest Diagnostics and LabCorp, preparing to scoop up smaller labs adversely affected by PAMA price cuts. But deals remain difficult to close and the pandemic has apparently deferred strategic deal making to at least some degree. But before it’s all said and done, COVID-19 might actually accelerate M&A activity by putting more financially stressed hospital labs in play. The pandemic “could be an additional catalyst to help drive industry consolidation,” Quest CEO Steve Rusckowski noted in a recent conference call with investors.

The Thermo Fisher Scientific-Qiagen Deal Dies. . .

Perhaps fittingly, the year’s biggest M&A deal in the diagnostics space so far, Thermo Fisher Scientific’s acquisition of Qiagen came to an end just months after it was announced. Back in March, the $11.5 billion, or roughly $46 per share price (representing a premium of 23% over the March 2 closing price of Qiagen’s common stock), seemed like a fair price. But the pandemic caused a surge in demand for Qiagen’s products and forced Thermo Fisher to sweeten the offer. Although the Qiagen board unanimously endorsed the new terms, the shareholders weren’t convinced, with only 47.02% of the common shares tendered, far short of the necessary two-thirds. On August 13, Thermo Fisher announced that it was walking away, after pocketing the $95 million in expense reimbursement Qiagen was required to pay under the original acquisition contract if the deal didn’t close.

. . . But a New Blockbuster Takes Its Place

Dibs for the biggest DX deal of 2020 now goes to the proposed $16.4 billion all-cash merger between Siemens Healthineers and Varian Medical Systems announced on August 2. Siemens Healthineers will acquire 100% of Varian’s outstanding shares at a 42% premium rate of $177.50 per share. Adding Varian’s artificial intelligence, machine learning and data analytics to Siemens Healthineers’ cancer diagnostics portfolio will enable the merged firm to provide services across cancer-care continuum, including screening, diagnosis, care delivery and post-treatment.

Here’s a summary of the key M&A diagnostic deals announced in August 2020: