Medical Device Outsourcing Market Update – March 2023

Stringent Regulatory Conditions Support Robust Demand for Outsourced Solutions

Capstone Partners released its March 2023 Medical Device Outsourcing Market Update, reporting that sector resiliency led to strong merger and acquisition (M&A) volume throughout 2022. Lower COVID-19 cases and related hospitalizations have increased the rate of elective surgeries, while the necessity of non-elective medical surgeries is expected to drive demand for medical devices in 2023. A noticeable shift towards outsourcing strategies favoring more diversified and local production, rather than low-cost-country sourcing solutions, has had a profound effect on increasing the reliability of supply chains. Reshoring efforts have also begun to ease production pressures for original equipment manufacturers (OEMs) and provide additional outsourcing opportunities for sector players, including U.S. Government incentives in the 2020 CARES act and the 2022 CHIPS act, which have helped to expedite time-to-market for OEMs and contract manufacturers.

Sector M&A activity in 2022 trailed the historic levels of deal volume in 2021, but outperformed transaction activity in the broader middle market. Sponsor-backed platform companies have continued to drive M&A activity, as private equity remains bullish on the long-term growth prospects for the industry. High interest rates in the U.S. have also negatively impacted lending conditions, leading private equity firms to prioritize add-on acquisitions over large-scale platform investments. In addition, continuously evolving regulatory standards in the U.S. have fueled demand for outsourced regulatory consulting and testing providers. Capstone advised ToxStrategies, a regulatory consulting firm for medical devices, on its recapitalization to Renovus Capital in January, a prime example of the increased activity in the segment. Public companies in the Medical Device Outsourcing sector have demonstrated strong operating performance, as medical device outsource manufacturer Integer (NYSE:ITGR) reported double digit increases in year-over-year (YOY) sales, while Capstone’s Medical Device Outsourcing Index has outperformed the S&P 500 on an EBITDA multiple basis since December 2021.

Also included in this report:

• A spotlight on Jordan Company-backed ARCH Medical Solutions, a serial acquirer in the sector.
• An overview of leading outsourced regulatory compliance testing providers.
• Notable transactions in the Medical Device Outsourcing sector.