PitchBook News - Diagnosing medtech's future

The innovation landscape in diagnostics is rapidly evolving.

Diagnostics startups have raised over $24 billion of VC funding since 2020 and two of the largest VC deals in medtech this year have been in the diagnostics sector—Element Biosciences' $277 million Series D and Freenome's $254 million Series F.

Diagnostic screening is increasingly shifting to nontraditional locations such as the home setting and point-of-care, and emerging technologies in cancer screening, treatment selection, and medical imaging are set to revolutionize diagnostics over the coming decade.

 

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This week, we published the last of our flagship reports looking back at Q3 PE activity.

In researching the US PE market, we look at the big (US Public PE and GP Deal Roundup), the small (US PE Middle Market Report), and everything at once (US PE Breakdown).

Because smaller deals tend to trickle in well past the quarter close, we save the best for last: the middle market.

This segment accounts for roughly 55% of deal value and 65% of deal count in any given quarter, relative to total PE buyout activity, and it's where most service providers and dealmakers make their living.

Key takeaways from our Q3 report include:

• In Q3, middle market buyouts accelerated by 11.1% from Q2 while extending the year-to-date gain to 17.5% over the same span last year.

• The pickup in megadeal activity was more pronounced, but that was to be expected as that segment fell harder during the downturn.

• Financial conditions improved the most at the top end of the market, making deal financing accessible in greater quantity and at a lesser cost, thus accounting for the short-term strength. Going forward, we expect the next leg down in interest rates to equally benefit both size segments.

• Sluggish action in exits and valuations remain formidable obstacles, especially in the middle market.

• Middle market exits are annualizing at a muted 5% gain versus 2023 and have yet to break above the "old normal" levels. Valuation gains have also been sluggish.

Ironically, better times in the small-cap part of private markets may begin in the small-cap part of public markets. One macro indicator we monitor is the relationship between small and large-cap stocks in public markets.

 

Recent strength in small-cap stocks may bode well for PE.