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Option-To-Acquire In Medical Device Deals Rarely Gets Exercised

For a device start-up, an option to acquire presents a clear path to liquidity, but there are drawbacks. An analysis of deals in Elsevier’s Strategic Transactions suggests the importance of such options to the overall merger and acquisition ecosystem might be overblown.

The dearth of early-stage capital available for medical device start-ups has created both a need and an opportunity for large medical device companies with corporate venturing programs. (See Also see "Corporate Venture Eyes The Early Stage" - Scrip, 13 September, 2012..) The capital is welcome and necessary. But such investments historically have come with a few potential strings, the most prominent being the pursuit of an option to acquire a start-up.

Option-to-acquire deals are not new – in fact many times they are clauses to existing agreements that are never publicly disclosed – and they are often a way for a bigger device company to get a first look at an innovative asset before jumping into a full acquisition. For a start-up, the option presents a clearer path to liquidity

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