The LSI USA ‘24 conference brought together industry leaders to discuss the current landscape and future directions in medtech M&A. The panelists shared valuable insights into their strategies, emphasizing the importance of growth, efficient capital utilization, portfolio optimization, and the evolving role of private equity. Here are six key takeaways from the discussion.

Focus on Growth and Strategic Portfolio Fit

One of the central themes at the conference was the continued importance of growth in driving valuations for large-cap medtech companies. Bennett Blau from Goldman Sachs highlighted this point, stating, "If you look across where the public markets are, and you look at the things that really drive, at least from a financial perspective, valuation, growth is still the strongest predictor of differences in  public market valuations for large-cap medtech." This emphasis on growth is critical for medical device investors keen on companies that can demonstrate a clear path to sustained revenue increases and market expansion.

Internal Focus on Earnings and Margins

Chris Eso from Medtronic discussed the company's focus on improving internal metrics before pursuing further medtech M&A activities. He noted, "In 2023, it was really about how do we focus internally and improve our earnings power? How do we get our margins back to where we were pre-pandemic?" This internal focus is crucial for ensuring that companies are financially robust and capable of making new acquisitions without compromising their core financial health. Medical device investors closely monitor these metrics to gauge the overall health and potential of the companies they invest in.

Efficient Capital Utilization and Risk Management

Greg Banker from Pansonic Capital emphasized the need for medtech companies to have a clear plan to reach cash flow breakeven and manage capital efficiently. "It's no longer ‘growth at all costs,’ especially for commercial-stage companies; you really have to have a believable story for what a cash flow breakeven plan would look like," he explained. This pragmatic approach to capital utilization and risk management ensures that companies can sustain growth while maintaining financial stability, a key consideration for investors.

Strategic Evaluation and Portfolio Optimization

Continuous evaluation of the portfolio is essential for optimizing value and aligning with strategic goals. Chris Eso shared Medtronic's approach: “We continuously look at our portfolio. There will always be continuous evaluation of the different pieces of our full suite of businesses to say, are they adding value in that given point?" This dynamic strategy allows companies to remain agile and responsive to market changes, ensuring their portfolios are optimized for maximum value creation in the medtech market.

Sophistication and Creativity in Private Equity

The role of private equity in the medtech market has evolved significantly, with increased sophistication and creative solutions tailored to different needs. Bennett Blau observed, "The level of creative thinking is certainly at an all-time high, and the degree of effort that goes into getting the right external advisors to find transactions in those complex situations has gone way up." This evolution provides medical device investors with more options and strategies for funding and growth.

Importance of Fitting into Existing Workflows

Jennifer Fried from Flow Medical highlighted the necessity for new technologies to integrate seamlessly into existing hospital workflows. "Anytime you bring a new technology into a hospital, you are always going to fight a battle. To bring in a new technology, you have to fit yourself into an existing workflow, whether that's people, process, or technology that's already embedded in how patient care is done," she noted. This insight is crucial for medtech companies looking to ensure their innovations are adopted effectively in clinical settings. Medical device investors consider this integration capability when evaluating the potential success of new technologies in the medtech market.

Conclusion

The recording of full panel can be found in LSI’s resource hub at the link below:

• Medtech M&A 2024: Looking Onward and Upward | LSI USA ‘24

These discussions provided a comprehensive overview of the current strategies and future directions in the medtech market. The panelists emphasized the importance of growth, efficient capital utilization, portfolio optimization, and the evolving role of private equity. These insights are invaluable for medical device investors seeking to navigate the complex landscape of medtech M&A. As the industry continues to evolve, these strategies will be essential for driving innovation and ensuring sustainable growth.

To participate in discussions like this, join 1,500+ executives at LSI USA ‘25 on March 17th to 21st in Dana Point, California.