Thesis Abstract

Mergers and Acquisitions in the Medical Device Industry

(By Kevin Lee Ohashi)
Mergers and acquisitions in the Medical Device Industry are the primary mode of exit for early stage companies. The focus of this thesis is to examine factors which influence the value of these M&A transactions from the target and acquiring firm perspectives and to understand the value creation that occurs. Publicly available electronic and published data sources were used to build a database of 674 M&A transactions and 113 IPO events for deals with published deal values and terms between January 1996 and October 2006. In this work, we demonstrate that transaction deal value varies between various medical device industry sectors. Factors that were shown to significantly correlate with M&A transaction deal value included the Sales of the target company, Market Capitalization value of the acquiring company, type of regulatory approval, and whether the company had venture backing prior to acquisition. M&A transactions that involved targets that were Public companies had significantly higher deal values than those that were private. Using 3-day event window analysis, returns of acquiring companies were shown to be slightly negative and significantly less than the S&P composite index returns over the same period. Previous studies suggest that managers in larger firms tend to use overvalued stock and empire building behavior, resulting in overbidding or pay more for acquisitions. No significant difference in deal value was associated with financing terms between cash and stock transactions. The use of earn outs had no effect on the deal value or the acquirer stock returns. Markets that are developing will continue to have increasing deal value as firms attempt to establish market share and or acquire breakthrough technologies. We found that there were positive correlation of M&A or IPO transaction value for companies in less mature markets where companies have opportunities to leap frog other companies in market position and share. Conversely, there is negative correlation of M&A or IPO transaction value for companies in more mature markets. The results are discussed in terms of the specific factors that influence the transaction value and the degree to which target and acquiring firms benefit from M&A transactions.

Thesis Co-Supervisor: Anthony J. Sinskey, MIT Professor of Biology and Harvard-MIT Professor Health Science and Technology

Thesis Co-Supervisor: Antoinette Schoar, Michael M. Koerner Associate Professor of Entrepreneurial Finance in the MIT Sloan School of Management

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