At the MassMEDIC conference in Boston last Friday, Neil Oboroi of BOA/Merrill Lynch, an investment banker based in New York, discussed the M&A market for healthcare in general and medical devices in particular. As befits an investment banker, he was enthused with the increasing volume of healthcare M&A, and furthermore had statistics to demonstrate a positive link between M&A activity and stock price.

His belief is that stocks of companies effecting acquisitions in the life sciences out-perform their peer group (companies not undertaking M&A transactions) by 8% based upon share value. He predicts that consolidations in life science will continue, with acquirors seeking return on investment capital as opposed to looking only at earnings per share impact.

Many of the larger deals in the life sciences involved devices and diagnostics. Valuations, which peaked at about five times forward revenues in 2007 and fell to about three times in the ensuing years, are now up ticking again, in part because of the prevalence of cross-border transactions.

He also noted that larger publicly traded medical device companies were now trading at a little bit over twenty-three times forward earnings, down from approximately thirty-two times forward earnings a decade ago; so market multiples are falling. He also noted that many of the larger companies that had undertaken M&A were now choosing to report based on earnings per share, in addition to using a GAAP standard; earnings per share reporting allows easier comparison of companies, particularly as they are emerging.

Oboroi also touched upon inversion transactions, noting that earnings always were taxed where earned. The real play, made harder by recent tax changes, is the ability to utilize offshore cash domestically; the only way today to effect an inversion is through an M&A transaction.

There was also a discussion of the life science new issuance market, which is extremely robust and on a pace to equal or surpass the previous heights of the 2007 IPO market. The criteria for going public with a device company today: hard revenues, with a $25,000,000 to $50,000,000 minimum run rate, a growth curve, and a robust management team. The IPO market was viewed as synergistic with and consistent with the strong med tech M&A market.