By Eric Williams
M&A activity in the medical device outsourcing industry appears to be heating up. Several noteworthy transactions have been completed or announced so far this year, and the volume of transactions is rising. International investment banking firm Capstone Partners believes this activity reflects the industry’s rising growth prospects, as well as an uptick in the operating performance of both acquiring firms and targets in the medical device outsourcing sector. These industry-specific factors are also supported by larger factors driving overall M&A activity, including the following:
- Private equity groups have ample capital to deploy (estimated at $500 billion).
- Acquisition financing is available at favorable terms.
- Strategic acquirers with large cash reserves are seeking investments to boost organic growth.
In a recent Capstone poll of corporations and private equity firms with holdings or interest in the medical device outsourcing industry, buyers noted that acquisitions are an increasingly important part of their strategic plans. Many respondents suggested that, before 2013 they were more concerned with internal initiatives, but now that the industry is experiencing better growth they are again looking to make acquisitions that make sense.
In general, corporate acquirers and private-equity-backed firms are targeting prospects in the medical device outsourcing sector that provide specific capabilities or services that complement their core offerings. On the other hand, private-equity buyers looking for a platform holding in the segment are generally interested in the category as a whole and will consider targets within a range of outsourced services; design, development, and manufacturing solutions; and device and therapeutic application subsectors.
Still, these buyers have specific financial criteria for their investments. They want companies that meet specific size, growth, and margin parameters, which vary depending on the scale and focus of the fund.
With outstanding M&A market conditions in place, strong demand for quality companies from buyers, and rising confidence among CEOs, Capstone expects that M&A activity in the medical outsourcing industry is poised for continued growth.
Eric Williams, managing director and head of Capstone’s medical device outsourcing practice, is speaking June 9, 2014, at MD&M East in New York City. His presentation, entitled “Medtech Outsourcing: How to Benefit from Accelerating M&A Markets” will cover the current M&A environment for medical device outsourcing companies, value building and optimal timing, and process/negotiation strategies.
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