Livingstone spoke with a panel of CEOs, medical device manufacturers (OEMs), and private equity investors to discuss key drivers of the medtech M&A boom.
- Kevin Cordero, Stryker Craniomaxillofacial, Director, Clinical Research & Market Intelligence
- Hunter Craig, GTCR, Vice President
- Steve Sundberg, MedTorque, President & CEO
- Chris Witham, Motion Dynamics, CEO
Karl Freimuth, partner and co-head of the US industrials practice at Livingstone moderated the discussion. Panelists provided advice to business owners contemplating a potential sale. Read the responses below:
From the panelists perspective, what advice would you offer to a prospective business owner who’s contemplating a potential sale? What are some of the highly valued attributes for prospective acquisition targets?
Kevin Cordero: Quality of operations, systems manufacturing, and making sure that the business is running the proper way. Earlier I mentioned a big risk are the regulatory components. Seeing a medical technology that’s been cleared by the FDA and has time on the market with feedback from the field is valuable. It helps us avoid unknown safety and efficacy issues with the product. Ultimately, we want innovative products with growth potential. So products that are cutting edge that will help differentiate us versus commodity products, while also complementing our core portfolio, are attractive.
Hunter Craig: If I was advising someone selling their business, keep the story simple. Karl is going to ask you to write a 100-page deck. 15 pages are probably all that is required to tell the story. Keep the story simple, keep the numbers synthesized and straightforward.
Resonetics is a good example. We had a board meeting a couple of months ago and we’re chatting with the team about the key operating KPIs for their business. Not 20 things but the three to five KPIs that you track to check the momentum of the business and longitudinal view of the operations. These are the metrics that we track and help people draw lines into the future. And also keep the next chapter of the growth story as structured as possible. Don’t stray too much from what your business has historically achieved. I believe doing otherwise erodes credibility.
Chris Witham: The Vance Street group that I partnered with really liked our company as it was really simple and really clean. Not a lot of excuses. We also weren’t afraid to grow. We moved into a new facility that was specifically built three times the size of what we needed at the time as we were prepared for growth. And that was four years ago. We’re doubling the size of our facility right now. So I think those are the kind of stories that people like to see – it’s not the end of the runway.
On top of that, all buyers want to acquire companies with a diversified customer base. That is probably one of the most important things that you can do – have diversification.
Steve Sundberg: My advice would be to spend time building and developing your leadership team. If you are playing in the medical market, it is a given you have your Quality & Regulatory systems in place. If not – make that job one. But everything else we’ve talked about today involves being flexible and adaptable to the ever-increasing requirements of the marketplace. Doing this well takes top talent.
People who embrace change, who are committed to growth, and who have high EQ’s. Most of us can’t afford large staffs with a person tasked with every job. So, we need to have a team of Leaders who are comfortable moving from the Board room to the manufacturing floor, and back again. A team that is committed to personal growth, as well as helping the organization grow. I’m confident that doing this increases the value to the enterprise, and for sure makes it whole lot more fun to be a part of.
For managers going through a sale process, what advice would you give to a manager given you recently went through a sale process? What factors should they prepare for?
Chris Witham: Have patience. People are going to pull. It is like going through a physical 10 times over. They’re going to want a lot of data, a lot of information, information that you might not view as important. But it is important to buyers. Just have patience.
For smaller or midsized contract manufacturing organizations, there is going to be fallout in light of all of the consolidation. It is an extremely fragmented market. As Hunter alluded to earlier, Abbott is doing business with two to three hundred contract manufacturing organizations in their supply chain. OEMs continue to demand more from their suppliers. Is there a window for smaller to mid-size medtech CMOs to exit in the near term or do they put their businesses at risk of losing business as their existing platforms sunset and new platforms are awarded to the larger CMOs with broader capabilities?
Chris Witham: It depends on what your capabilities are. One of my sayings is if you have a big moat around your business I think you’re safe.
Hunter Craig: If you are a smaller to midsize scale guy and you’re not planning to invest a bunch of capital to grow your business organically or do acquisitions to get scale, I think you’ve got to seriously consider selling given where valuations are at and what the future might look like. I think Karl’s right. OEMs will continue to more aggressively consolidate their supply chains. So if you’re not going to sell, you need to get to scale pretty quickly.
Final question where rubber hits the road on value. It has been an incredibly robust market to sell medtech assets over the last few years. Do you believe that valuations and multiples will increase, remain steady, or decline?
Hunter Craig: I think multiples have peaked. We saw pretty rapid expansion over the last few years but we’ve kind of seen multiples settle out a bit. I think as much as it is about the multiples, buyer scrutiny of earnings and EBITDA underpins the ultimate purchase price. I think at least around our shop scrutiny of earnings is intensifying.
In the last 12 to 18 months, there has been like a whole new flavor of adjustments to earnings proposed by sellers. A lot of those proposed adjustments don’t come to fruition. So I believe multiples are going to pull back and earnings will be presented on a more normalized, credible basis over the coming years.
Access the entire Medtech M&A report by clicking here.
For a pdf version of the report, please reach out to Olga Jewusiak at firstname.lastname@example.org.