After several quarters with little to no exit activity in the medtech space, several VC-backed startups made exits in the second quarter of this year, according to a new PitchBook report released this week.
“From an M&A perspective, large medtech strategics have been building up capital to put to work and have generally shifted from cost-cutting to more growth-oriented initiatives. Startups are beginning to move on from outdated valuations, and may be more willing to consider getting acquired as capital raising remains difficult,” said Aaron DeGagne, a senior analyst for healthcare at PitchBook.
Public markets that are buoyant — or at least stable — can increase the potential prize for a successful IPO, he added.
This means late-stage startups in the medtech space can now see a reasonable pathway to a public listing, DeGagne explained.
He pointed out Tempus’ public listing in June as an example — this IPO raised more than $400 million for the AI-powered precision medicine company. Tempus has been recently trading at a market cap near $7 billion, which is down from its last private valuation of about $10 billion in October 2022, according to PitchBook’s report.
The report also noted that Tempus’ IPO is significant because the company is currently unprofitable — and profitability has historically been regarded as a prerequisite for a public exit. The IPO may mark a turning point for investors’ willingness to support unprofitable companies should a public listing present itself as a realistic possibility, the report said.
Other public exits in the medtech space during the second quarter include the acquisitions of Belkin Vision, C2i Genomics, Attune Medical and Blackrock Neurotech.
Going forward, DeGagne expects that acquisitions of private companies by large public firms will continue to outpace IPO activity in the medtech space.
“Megadeals will likely be on hold until 2025 as corporations wait out the election and related antitrust uncertainty. I predict there will be a handful of medtech IPOs occurring by the end of the year as some startups attempt to follow Tempus’ lead. But most IPO-ready medtech companies will be gearing up for 2025 at this point, as the highest quality startups will wait for others to test the waters first,” he remarked.
DeGagne added that he expects roughly stable venture capital funding levels for the medtech space over the course of 2024, in line with the $6.8 billion raised during the first half of the year.
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