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Pulse of the industry US medical technology
report 2008
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Transactions
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Medtech industry overview September 2008

• Medtech MAs are faring much better than overall
  MA market
• Total dollars 19.1B for H1 2008 vs. 21.3B for
  H1 2007
• Deal volume 31 deals in H1 2008 vs. 34 deals in
  H1 2007
• MA industry participants continue to expand and
  diversify
• More diverse industry participants
• More diverse group of buyer/acquirers
• Medtech IPO volume is virtually non-existent in
  2008
• Medtech VC financing has remained stable and on a
  consistent pace with the record 2007 amount
• Several public to private attempts
• ArthroCare
• AngioTech
• Datascope

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Medtech MA activity begins to slow
Source Ernst Young, Windhover, Jefferies Co.
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but average deal size increases
Source Ernst Young, Windhover, Jefferies Co.
6
The top MA deals of 2007 H1 2008
2007
H1 2008
Source Ernst Young, Windhover, Jefferies Co.
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Medtech buyers by sector market
Source Ernst Young, Windhover, Jefferies Co.
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Emerging players in the MA market deal
activity in 2007 H1 2008
Source Ernst Young, Windhover, Jefferies Co.
Cytyc was later acquired by Hologic
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Non-imaging diagnostics were a hot commodity in
2007
Source Ernst Young, Windhover, Jefferies Co.
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and continued to be a target in H1 2008
Source Ernst Young, Windhover, Jefferies Co.
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Top non-imaging diagnostic deals
2007
H1 2008
Source Ernst Young, Windhover, Jefferies Co.
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Current perspective on private equity healthcare
investing

• Private equity is targeting the healthcare sector
  to seek protection from the economic slowdown.¹
• In Europe, total private equity deals in the
  sector jumped to first place from third place, in
  part as the result of an aging population in
  Europe a growing demand for private healthcare
  and the prospect of big contracts from the UK
  government as it outsources more health services
  to the private sector.¹
• US healthcare private equity deals have also
  seen an 85 increase from 1H2007 to 1H2008.² ³
• In the mid-market, the healthcare sector is
  expected to produce the highest returns for its
  investors among all sectors. A survey by UK
  mid-market buyout firm August Equity LLP in April
  2008 revealed that 17 of respondents think the
  healthcare sector will perform the best in terms
  of private equity deals, ahead of energy, mining
  and utilities.¹
• Private equity firms are also looking beyond
  traditional healthcare for opportunities. One of
  the areas is home healthcare. There have been
  five home healthcare private equity deals so far
  in 2008, leading by Blackstones 1.6 billion
  acquisition of Apria Healthcare Group.4
• Other sub-sectors that are of particular interest
  to PEs include medical and information
  technology, healthcare services and
  pharmaceuticals.
• Other noteworthy deals in the healthcare space
  include
• ConvaTec, one of Bristol-Myers Squibbs three
  divisions, was sold in May to a PE consorttium
  led by Avista Capital Partners (4.1bn).5
• Apaxs acquisition of TriZetto Group, a US-based
  healthcare software company (1.4bn, April 2008).
• In the largest deal in Russia to date, TPG paid
  800m for a 50 stake in SIA International, a
  company that distributes pharmaceuticals in
  Russia (April 2008).6
• Sources (1)Health care as a haven - sector
  finds favor among buyout firms during slowdown,
  The Wall Street Journal Europe, May 14, 2008 via
  Dow Jones Factiva (2) Buyout shops get creative
  in slow deal market, Buyouts, pg. 40, July 7,
  2008 (3) Risk of Slowdown Rises Toward End of
  Busy Q2, Buyouts, pg. 22, July 9, 2007 (4)
  Firms look beyond hospitals for healthcare
  deals Buyouts, pg. 4, July 7, 2008 (5) The
  Health Care MA Monthly, June 2008 (6) the
  Health Care MA Monthly, May 2008.

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The emergence of private equity
No private equity deals
Source Ernst Young, Windhover, Jefferies Co.
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Top private equity acquirers 2006-H1 2008
Proposed deal in Q3 2008

• Completed deal with Goldman Sachs KKR
• Completed deal with Nordic Capital

Source Ernst Young, Windhover, Jefferies Co.
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What will the future bring?
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Outlook for the rest of 2008

• IPO backlog finding extreme difficulty in the
  public markets
• Public investors will continue to be choosy,
  seeking companies with predictive revenues and
  profitability
• Companies and investors will have to fund and
  nourish companies for longer periods of time
• Market volatility will result in delays for how
  long is anyones guess
• MAs will continue to be the exit of choice for
  most private companies
• 3 IPOs (114.7 million raised) in H1 2008 vs. 7
  IPOs (712 million) in H1 2007
• VCs stay at the table
• Look for VCs to increase focus on aesthetics,
  neuro, surgical tools, ortho (spine) and
  ophthalmics
• Biotech investors will increasingly look to
  medtech companies to balance their biopharma
  portfolios
• Investors must plan exits more carefully to
  create maximum valuationsare there enough exits?
• Continuation of strategic consolidations and
  increased carve-outs
• Ample supply of willing buyersmore activity from
  non-traditional players (mid-tiers, PE)
• Large medtech companies have businesses that
  dont meet their core goalsprofitability or
  product
• PE will remain an active participant, but large
  club deals will be limited
• Biomet club deals will be limited - expect to see
  more single-sponsor acquisitions below 1.5B
• Alternative financing may become more prevalent
• Hedge funds, institutional private equity, and
  insurance companies may be new sources of equity
• Increased regulatory and legal scrutiny
• Product safety, longer approvals, global
  expansion, reimbursement, sales marketing
  practices, etc.

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Thank you!

• John Babitt
• 212.773.0912
• john.babitt_at_ey.com
• Ernst Young Global Biotechnology and Medical
  Technology Center Boston
• 1.617.585.1800
• globalbiotechcenter_at_ey.com
• www.ey.com