Publications
Mergers and Acquisitions in the Medical Device Industry
By Kevin Lee Ohashi
Abstract
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
Request copy of thesis cbi@mit.edu
