Private Equity Targets Scale in Medical Technology Outsourcing
Capstone’s latest Medical Device Outsourcing Sector Update reports that merger and acquisition (M&A) deal volume in the sector has rebounded, spurred along by a considerable uptick in private equity (PE) add-on activity. An ever-changing international trade environment has provided the Medical Device Outsourced Manufacturing market with a strong tailwind as large strategics seek to vertically integrate critical parts of their supply chains.
U.S.-based outsourcers have benefitted significantly from the volatility introduced into the operations of medical device original equipment manufacturers (OEMs), with tariff-avoidance strategies driving both increases in product and service demand as well as M&A target interest. The failure of medical organizations to successfully lobby the U.S. government and its counterparts to exempt medical devices from tariffs has positioned American suppliers as crucial components of previously geographically diverse supply chains, benefitting from a sudden rush in near-shoring and onshoring strategies.
M&A activity in the Medical Device Outsourcing sector has increased compared to last year. For financial backers, obvious synergies across the manufacturing processes of multiple portfolio companies provide easily obtained cost savings benefits, while strategic buyers reign in their international supply chains to mitigate near-term and long-term tariff risk.
The contract sterilization has been repositioned due to health and legal pressures. The predominant form of medical equipment sterilization—ethylene oxide gas (EtO)—has been targeted as a threat to worker and environmental safety by U.S. regulatory agencies that have directed companies to phase out the substance, opening a multibillion-dollar market opportunity for alternative forms of sterilization. Vaporized hydrogen peroxide has emerged as the leading clean and cost-effective alternative to EtO, with contract service providers that have already diversified away from EtO better positioned to reap the rewards of this regulatory shift.
Specialization services have served as a key driver of M&A activity within the Medical Device Outsourced Manufacturing market. Large strategics (i.e., Integer, MMT) have focused on securing the highly specialized fabrication and machining elements of their supply chains through inorganic growth.
Also included in this report:
A detailed review of tariff mitigation strategies set in place by public companies, including estimated financial impacts of tariff volatility.
The effects of Environmental Protection Agency (EPA) and Food and Drug Administration (FDA) regulatory changes on the Contract Sterilization market.
Insights from an interview with leading Medical Technology market investor Vance Street Capital, including what the firm looks for when identifying potential investments.
Capstone Partners’ Healthcare Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the healthcare industries. Our team partners with leading mid-to-large sized Home Care businesses that serve growing end-markets. For more information on the Home Care market trends featured in this report or to speak with one of our Healthcare Investment Banking Team members about how to grow, value, and/or sell your company, contact us today to start a conversation.
