Distressed M&A predicted to play a major role in European HealthTech and MedTech 2026

Distressed M&A is forecast to be a structural, not cyclical, feature of European HealthTech and MedTech dealmaking in 2026, driven by a convergence of regulatory capital requirements, funding market resets and operational pressures that create a clearing event for undercapitalised assets.​

To discuss how Nelson Advisors can help your HealthTech, MedTech, Health AI or Digital Health company, please email [email protected]

Core drivers of distressed activity

Regulatory Darwinism is the primary catalyst. Full MDR/IVDR implementation, EUDAMED mandatory go‑live (May 2026), and AI Act compliance have created capital‑intensive barriers that act as a “guillotine” for stand‑alone SMEs. Notified Body certification, clinical data generation, post‑market surveillance and data governance requirements are largely untenable for companies without deep balance sheets, forcing them into the arms of larger strategics that possess scaled regulatory infrastructure. This is explicitly framed as “compliance‑driven M&A,” where acquirers target IP, customer bases and regulatory approvals from firms that cannot afford the transition costs.​

Private equity liquidity pressures compound the dynamic. With ~$2.5 trillion in global dry powder and a significant backlog of 2019–2021 vintage assets requiring exit, PE sponsors face immense pressure to return capital to LPs. However, the IPO market remains selective, focusing only on assets with proven profitability and scale. Consequently, sponsors are increasingly utilising continuation funds, secondary buyouts and forced sales to drive consolidation, with 38% of European M&A respondents expecting distress‑driven deals to dominate buy‑side activity. Financing difficulties and valuation gaps are cited as key deal drivers, creating a pool of forced sellers.​

Operational and market stress is accelerating in specific sub‑sectors. Companies that achieved product‑market fit but failed to secure reimbursement traction or scale revenue are now facing flat or shrinking growth, making them prime targets for IP‑only or acqui‑hire transactions at compressed valuations. The combination of elevated cost of capital, investor retrenchment and regulatory overhead is creating a “funding reset” that will flush out “zombie” assets through down rounds, recapitalisations and pay‑to‑play restructurings.​

Most vulnerable sub‑sectors

MedTech devices and diagnostics face the clearest distress risk. MDR/IVDR transition costs, UKCA divergence and rising quality‑system expenses (QMSR alignment, EUDAMED, sustainability rules) are squeezing smaller UK and EU manufacturers, many of which are expected to sell under pressure. Generalist CDMOs are also vulnerable, though specialists in viral vectors, ADCs and sterile injectables remain attractive.​

Digital health and HealthTech platforms that built inflated cap tables during 2021–22 but lack clear reimbursement or sustainable unit economics are prime distressed targets. Investors are prioritising companies with robust clinical validation and AI integration; those without face acquisition for IP rather than revenue. Early‑stage AI companies that “moved fast and broke things” without regulatory foundations are becoming uninvestable and will exit as distressed sales.​

Veterinary, dental and ophthalmology services in the UK are experiencing a “corporatisation clash” and “locum crisis,” with regulatory scrutiny (the “CMA Effect”) pushing capital toward Continental Europe where corporate ownership is lower (15–20% vs. ~60% in the UK). This is creating distressed sellers in the UK and fragmented buy‑and‑build opportunities in Southern Europe.​

Buyer strategies and opportunities

Strategic acquirers (Roche, Siemens Healthineers, Abbott, Medtronic, J&J, Philips) are using M&A to secure “compliance moats” and data sovereignty. They are targeting AI‑native platforms, robotics and digital pathology assets that can be integrated across existing portfolios, with a focus on H1 2026 to get ahead of EHDS implementation.​

Private equity is deploying buy‑and‑build strategies in fragmented services (veterinary, dental, fertility) across Southern and Eastern Europe, acquiring at low multiples (6x–8x EBITDA) and integrating into pan‑European platforms that command premium exits (12x–15x EBITDA). PE is also forming club deals with corporate buyers in high‑growth verticals like mental health tech, femtech and preventive care.​

US corporate venture funds are increasingly active in Europe, seeking early exposure to robotics and AI innovation before valuations reach US levels, effectively bridging the “Series B Gap” for European companies.​

Deal structure and valuation implications

Distressed transactions are expected to feature:

Compressed valuations relative to 2021–22 peaks, with multiples stabilising around ~4.8x revenue and low‑teens EV/EBITDA by Q4 2025.​

IP‑only or acqui‑hire structures for digital health assets lacking revenue scale.​

Regulatory due diligence as a core financial assessment, with compliance profiles treated as assets or liabilities.​

Continuation funds and secondary buyouts to manage PE portfolio churn.​

Outlook

2026 is described as the year European HealthTech “grows up,” graduating from the “laboratory” phase to the “factory” phase. The winners will not be those with the most disruptive technology, but those with the strongest compliance moats, interoperable data and industrial logic. Distressed M&A is the primary mechanism clearing the market of subscale, over‑funded or non‑compliant assets, making it a central pillar of European HealthTech and MedTech consolidation rather than a peripheral trend.

To discuss how Nelson Advisors can help your HealthTech, MedTech, Health AI or Digital Health company, please email [email protected]