The Value of an M&A Advisor Team Member—A Medtech Makers Q&A
Managing Director Daniel Sheppard was recently interview by Medical Product Outsourcing’s Editor-in-Chief, Sean Fenske, on the value of having an M&A Advisor on your deal team. Read the article below or view it on the MPO website here.
The medtech industry has seen dynamic changes at both the medical device OEM and strategic supplier levels. Often, this involves the mergers and acquisitions of companies, as this process provides several benefits. For a company seeking to develop innovation for a specific clinical area, acquiring a company already involved with it can significantly accelerate time to market. A company can also enter a new region with feet on the ground via the acquisition of an organization already there.
For sellers, however, the process can be intimidating as they are often unfamiliar with the sale process. As such, it’s a best practice to engage with those who are much more comfortable with it. An M&A advisor can help guide a seller throughout the process to help achieve the best result. They can provide insight on preparing for a sale, the actual process, and handling the close.
To help explain in further detail the ways in which an M&A advisor can provide invaluable guidance during the sale of a company, Daniel Sheppard, Managing Director at MedWorld Advisors, a middle market Healthcare M&A advisory firm, responded to the following questions. He addresses common pitfalls encountered, the benefits of having an advisor involved, and other common questions associated with the M&A process.
Sean Fenske: What’s driving M&A within the medtech industry?
Daniel Sheppard: Through all economic cycles this century (except for a short period during the pandemic), the medtech industry has been seen as a relatively safe market segment for all types of investors, including strategics, private equity groups (PEGs), and individuals. Aging populations, new diseases, exciting innovations (such as robotics and wearable technologies), the need for new ways of delivering healthcare, and growth in global markets are among the long-term trends that provide sustained tailwinds to the medtech industry.
Strategics continue to focus on M&A as they rely on acquiring innovative products and companies rather than investing in the cost of internal research and development. Private equity groups—carrying record levels of “dry powder” (i.e., cash available to deploy)—are looking for safe areas to invest that provide strong returns, and the medtech industry has long been considered recession-proof. There are also a growing number of family office and individual investors that bring additional investment dollars into the medtech industry.
Lastly, people enjoy making an impact! I know many people reading this are a part of this industry because they value having an impact on people’s lives. A lot of deals also get done because inventors, investors, and relevant stakeholders value improving health outcomes and helping new products reach new markets.
Fenske: Given these dynamics, why is 2025 a preferred time for a medtech owner to sell their business?
Sheppard: While it’s true the medtech industry is seen as a relatively safe investment most anytime, at MedWorld Advisors, we’re seeing an acceleration of opportunity for sellers of quality companies in medtech globally. For example, in 2024, we had a record year facilitating over $200 million of enterprise value for five clients across three continents. Further, the good news is that for each of our client sellers, their valuations (also known as the sales price) exceeded the average “valuation multiples” (which are valuation benchmarks of sales and/or EBITDA for sellers) across most other industries. They were also higher than numbers published for our industry in 2022/2023. We expect that trend to continue in 2025 for a few reasons:
First, industry strategics (e.g., companies like MDT, BSC, Stryker, Baxter, ZB, J&J, Abbott, etc.) have all indicated they are aggressively pursuing either incremental acquisitions (sometimes described as “tuck-ins”) or more transformative M&A opportunities. Some are keeping their options open to be able to participate in both scenarios!
Also, PEGs are currently in favor of medtech industry sellers for two main reasons. First, it is reported dry powder is at record highs. Second, there are more PEGs that include healthcare and/or medtech market segments within their investment mandates than ever before.
As medtech markets have become more successful globally, there is more international exposure for sellers from any region in the world with possible acquirers from almost anywhere across the globe. In summary, we expect 2025 to continue to have record, or near record, valuations for medtech industry sellers of quality companies that are represented by a professional M&A advisor.
Fenske: How do you know when it’s the right time to consider a sale? What are some common reasons?
Sheppard: It’s dynamic! The right time for one seller may not be the same for another. The starting point needs to involve an alignment of the key stakeholders (i.e., the equity owners) of the business. If the shareholders are not aligned and it’s not clear there will be a clean shareholder approval of an acquirer’s offer, most buyers—whether strategic or PEGs—will quickly back away from any further interest in buying the company. With that stated, if the key stakeholders are aligned, there are several common reasons for selling.
Many medtech companies are family businesses. As you can imagine, family businesses have many variables and scenario dynamics. (As an aside, MedWorld Advisors is a family business, so we know a thing or two about the dynamics of family businesses!) We are grateful to have represented families and assist them in achieving their desired stakeholder outcomes in both the U.S. and Europe. In some cases, we represent highly successful established entrepreneurs who don’t have kids or whose kids were simply not interested in running the family company in the future. In other cases, we represent very successful family businesses whose kids would like to continue to run the company while ensuring the “family trust” is established for their parents retirement and provides for the kids to take some money off the table while creating future stakeholder value (in which they will participate). This latter scenario is a double-win for the children as they receive stakeholder value today and will generate even more EXIT value for their future departure (when they are ready).
Some medtech companies are backed by individual investors or venture capital. Any business that receives investment understands most investors will eventually want to liquidate their shares in the company to receive a return on their investment. This timing can vary based on the investor’s objectives. As stated previously, when considering an EXIT, it is key to ensure all stakeholders are aligned on the objectives. At MedWorld, we have had the pleasure of successfully facilitating sales of medtech companies in this situation. We have found it critical to ensure (before we start) that all key shareholders are on-board for the M&A process.
Changing market dynamics can also contribute to the need for a company’s stakeholders to explore a sale. For example, on the opportunistic side, companies in the respiratory space became very hot during the pandemic; if someone is willing to pay you premium value for your business, it might make sense to cash in your chips before Lady Luck has a change of heart. On the other side, new innovations may squeeze the market opportunity for an existing player. However, that established market player still may have value to a competitor, so it may be a good time for those stakeholders to consider selling (while they still can).
Of course, even though we are a growth industry, there are times companies become financially distressed for one reason or another. If that (unfortunately) becomes the scenario, it’s imperative for the stakeholders to explore EXIT options as soon as practical. Sometimes, it is better to depart with something than nothing.
In the “fun” category, your business is doing so well that you receive “an offer you can’t refuse.” Most business owners have their EXIT number in mind. If you get that offer, it might be wise to consider taking it. We have seen examples where that number never comes again. Our only advice (should a business consider taking that offer) is to talk to an experienced M&A advisor in the medtech industry before accepting the offer. Any M&A advisor with integrity will help you understand if that special offer is likely the best or if you might be leaving money on the table.
Fenske: Why is it important to have an M&A advisor in your corner? Can they influence the sale price positively?
Sheppard: That’s a great question we love to answer. We have high confidence and knowledge from the deals we facilitated for our clients that MedWorld Advisors made a huge impact when exceeding their stakeholder objectives. Foremost, on average, companies represented by M&A advisors or investment banks have seen 23% higher valuations from buyers.
We’re able to positively influence the sale price in a number of ways. We provide guidance and advice for proper preparation for the M&A process to come. We help to ensure stakeholder alignment on EXIT value expectations. As mentioned previously, a lack of alignment or clarity of decision making by the seller can create uncertainty for the buyer’s ability to make a deal. Buyers don’t like wasting time and often walk away when they see the risk of a misaligned stakeholder group.
We establish a pre-diligence rigor that prevents any future issues during the confirmatory diligence process. Those issues can sometimes hurt stakeholder value if not pre-empted properly by your M&A advisor. We facilitate a professional M&A process that entices maximum participation by potential buyers (strategic and PEGs) and ensure the M&A process is designed for a competitive bidding process that creates stakeholder value for the seller.
An M&A advisor also addresses issues and concerns that arise between buyers and sellers to keep all parties moving constructively toward the ultimate “win-win” outcome for both sides. Sometimes, simply objective communication by an M&A advisor like MedWorld can de-personalize perceived or unintended “offensive” statements from either side.
We facilitate letter of intent (LOI) execution that ensures key issues are discussed and aligned so there are no misunderstandings during the final purchase agreement discussions. New issues that arise during the purchase agreement process can derail an otherwise good deal for both parties. It’s important to prevent these issues from occurring. During LOI negotiations, we drive the conversation constructively and professionally to ensure our seller leaves no money on the table when agreeing to an enterprise value (also known as the purchase price).
Your advisor can also coordinate the confirmatory diligence process professionally and efficiently to ensure momentum toward the final purchase agreement is maintained. It is known that momentum creates deals, while a lack of momentum kills deals.
An M&A advisor can ensure a final stakeholder outcome that meets and/or exceeds stakeholder’s expectations while also creating an opportunity for future value for the acquirer and a legacy for the business through a successful transaction and integration (post-transaction). Without an advisor like MedWorld on your team, this heavy and involved process falls entirely onto the shoulders of the seller. Having an advisor will alleviate pressure, provide expertise, and ensure you have a champion on your side to work exclusively on safeguarding your needs and expectations.
Fenske: Is it important for a medtech business owner to hire an M&A advisor who has experience in the medtech industry specifically?
Sheppard: Once a seller has decided to enter a sell process, we believe this issue is one of the most important considerations for a medtech business seller. With all the market and regulatory complexities, it’s critical to a medtech industry seller that their M&A advisor understands how to tell the story of the markets in a manner that simplifies the business opportunity for the buyer to understand. Additionally, with many strategics and PEGs focusing on this segment, it’s key for your M&A advisor to speak their language in creating the seller’s value proposition for each buyer. Further, it’s key an M&A advisor has the ability and insights to tell the opportunity story tailored to each potential buyer. That’s how one creates stakeholder value and positive shareholder outcomes.
Fenske: What are some common hiccups that can take place with a sale that an M&A advisor can assist with?
Sheppard: I addressed many of the potential hiccups in my response to your question regarding the reasons to hire an M&A advisor, but the biggest hiccups we observe include skeletons/issues in the closet that some sellers think it’s best to hide from the buyer. The reality is diligence is so thorough, there is no way to hide any issues. Therefore, it’s best to collaborate with your M&A advisor to expose those skeletons/issues in a nuanced way to ensure there is no misrepresentation while also explaining there is no material deficit to the value of the business to each buyer. If you don’t do that, sophisticated buyers will later use that information to either walk away from the deal or reduce their purchase price. We take pride in the fact we don’t let that happen to our sellers (or buyers for that matter as it’s in their best interest too).
Additionally, one of the top priorities must be to ensure the seller is truly ready for the M&A process; not doing so may create many unnecessary hiccups! While we do these M&A processes for a living, many sellers may only sell a business once or twice. Therefore, it’s important for a seller to hire an M&A advisor to ensure they are truly ready for the process. That’s the best way to ensure the seller will not only survive the M&A process but they thrive by obtaining the best possible stakeholder outcome.
Fenske: If I work with an M&A advisor, are they going to force a sale? In other words, am I locked into having to sell once I enlist the aid of the advisor?
Sheppard: This is a key question on many sellers’ minds. The answer is simple: if you hire an M&A advisor with integrity, their engagement letter will not force any seller to sell their business once the advisor is involved. At MedWorld Advisors, once we are assured the seller stakeholders are aligned in their objectives, we have confidence we can meet and/or exceed their expectations. However, if seller circumstances change for some reason and they choose not to sell, it is ok. We simply hope the sellers will re-engage us at a later date when a sale is better aligned with their goals We’ve experienced this before and are grateful our sellers stay with us as they understand we maintain the capabilities to properly represent their interests whenever the time is right.
Fenske: What problems have you seen take place in deals where an M&A advisor is not used?
Sheppard: We don’t always have exposure to all of these situations. Mostly, we are given second-hand stories by sellers who let us know the challenges they had previously when they didn’t hire an M&A advisor. We’ve also heard horror stories from buyers who are unable to complete a deal due to the lack of the seller’s preparedness or ability to provide them with what they need to close the deal. In fact, this is such a serious issue, we’ve had some buyers recommend sellers engage with us, even though that buyer then loses their exclusivity. The buyer simply lacks the confidence the seller is prepared to sell their business or will have the ability to survive the demands of the diligence process on their own.
Fenske: Do you have any additional comments you’d like to share based on any of the topics we discussed or something you’d like to tell medical device manufacturers?
Sheppard: MedWorld Advisors has so much respect for each and every medtech business owner. One of our value propositions for our medtech seller clients is key members of our team have run medtech business groups for Fortune 500 medtech giants (e.g., Medtronic). Therefore, we fully understand what it takes to be successful in this industry. Every medtech business is special, and every M&A process is unique. Like a snowflake, your M&A process will have its own DNA, as there are always dynamics intricate to you, your business, and your stakeholders. When the time is right for a medtech business owner to sell, it’s important for them to understand throughout the process that regardless of what happens in the M&A process, it is always your business, and it is always your process. Expect and demand respect and integrity at all times from all parties involved. You have earned it.
