Greatbatch completed its acquisition of Lake Region Medical, forming a company with annual revenues of ~$1.5 billion (includes non-orthopaedic) and expanding the list of suppliers pursuing nonorganic growth strategies in order to respond to OEM customers’ needs.
Greatbatch supplies implants and instruments for large joint, spine, extremity and trauma procedures, as well as delivery systems (cases and trays) for cleaning and sterilization. The Frisco, Texas-based company spent ~$1.73 billion in cash and stock on Lake Region, whose orthopaedic products include shaver blades/burrs, RF probes and suture anchors as well as a variety of components, sub-assemblies, instruments and implants for spine, reconstruction and fracture repair. Subject to shareholder approval, the merged entity will be renamed Integer Holdings.
ORTHOWORLD estimates at least ten percent of the company’s sales will pertain to orthopaedics, as Greatbatch’s orthopaedic sales alone could exceed $160 million, or 20 percent of overall Greatbatch revenue, in 2015.
About 46 percent of Greatbatch’s sales derive from the cardiac and neuromodulation industry, two large segments of Lake Region’s business. In choosing an acquisition target, Greatbatch’s interest in a diversified player like Lake Region allows the company to scale parallel to its main customers—Johnson & Johnson, Medtronic and St. Jude Medical.
Johnson & Johnson announced this year that the company is grouping all medical devices—cardiac, orthopaedic, surgical care, etc.—under one division. Medtronic’s mega $49.9 billion acquisition of Covidien and its surgical solution products was complementary to Medtronic’s cardiac/vascular and spine groups. OEMs seek leverage with hospital purchasing committees, and it’s expected that the main players, whether diversified or ortho-specific, will position their product portfolios to appear comprehensive and cost-saving.
Consolidation at the hospital level and the OEM level has led to significant M&A activity on the supplier side in 2014 and 2015. Considering the M&A activity from 2011 to present among companies that Greatbatch cites as its top orthopaedic competitors is a reminder of the private investments that have backed the larger suppliers, positioning them to make purchases in recent years.
Accellent: Acquired Lake Region in 2014; purchased by Greatbatch 2015
Avalign Technologies: Acquired by private-equity firm Arlington Capital Partners from RoundTable Healthcare Partners in 2015
IMDS: Acquired by Golden Equity Investments and grouped with newly formed affiliate CoorsTek Medical in 2013; CoorsTek Medical acquired Nanosurface Industries in 2014
Orchid Orthopedic Solutions: Acquired by private-equity fund Altor in 2011; acquired Alhenia in 2015
Sandvik: Medical Solutions division acquired by Altor (Orchid Orthopedic Solutions) in 2012
Symmetry: Acquired Codman & Shurtleff surgical instruments and Olsen Medical in 2011; Symmetry Medical OEM Solutions acquired by Tecomet in 2014
Paragon: Acquired by Beecken Petty O'Keefe private equity firm in 2013; acquired Michael Bubolz medical device business segment in 2015
Tecomet: Acquired Teleflex OEM orthopaedic business in 2012; acquired by Genstar Capital in 2013; acquired 3D Medical Manufacturing and Symmetry Medical OEM Solutions in 2014
Many of these larger suppliers—like the top OEMs—derive most of their revenue from the orthopaedic space. Seven orthopaedic OEMs, each with revenue of more than $1 billion, combine to control 71 percent of the market, according to THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT®. Suppliers simply must scale to meet manufacturing and regulatory needs, according to supplier executives and industry experts.
“We believe that there will be an increasing number of med tech contract manufacturers acquiring businesses to achieve a $100 million-plus size,” Robert Kinsella, President of Kinsella Group, told BONEZONE in response to Greatbatch’s latest acquisition. “We also feel that the pool of prospective acquirees will be in the revenue size of $10 million and above and will be located in the U.S. and Europe.”
Greatbatch has hurdled $100 million on the orthopaedic side alone. The company reported organic growth between seven and 13 percent on its orthopaedic business in the last three years. Greatbatch has said its greatest opportunities for orthopaedic product development will be in next generation reamers, hip and bone preparation instruments, disposable kits and power solutions for surgical tools.
More details on the company’s 2015 revenue and the Lake Region acquisition are expected during the third quarter earnings call.