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M&A in Medtech: How to Ensure That Scale Becomes a Competitive Advantage

Posted by Brian Chapman on September 29, 2017


Sudhanshu Bhatnagar co-wrote this blog post with Brian Chapman. It was originally published in The MedTech Strategist “Best of the Best 2016-2017 Special Edition” in September 2017.

After Michael Phelps won his 23rd Olympic gold medal in Rio de Janeiro last year, social media was rife with infographics on how his anatomy and size (height, wingspan and, falsely, even his “double” lung capacity) destined him to be a great swimmer. Yes, he’s tall, but so are his competi­tors. Such incomplete descriptions fail to mention that his skill, technique, methodical training and dedication to goals are what set him apart.

Size alone doesn’t matter. Maximiz­ing your opportunities is what gives you the edge.

Never has this been truer for the medtech industry than it is now. In recent years, many companies have been engaging in M&A to establish market dominance, resulting in only a handful of players commanding a lion’s share of the market across many segments. (Of course, medtech com­panies make acquisitions for many other reasons besides building mar­ket scale, but more on that in a later post.) We don’t have to look far back to see examples of this consolidation: Abbott and St. Jude Medical, Johnson & Johnson and DePuy Synthes, Zimmer and Biomet, Medtronic and Covi­dien, and Canon and Toshiba Medical Systems, among many others.

As the industry faces sluggish growth, reduced margins, and regu­latory and policy changes, is simply getting bigger going to help drive prof­its? Only if a company methodically unlocks the value that comes with being bigger.

Here’s how scale can potentially trans­late into a competitive advantage:

  • It enhances your ability to offer value-added products and services. Scale helps compa­nies become more innovative, develop solutions that can solve bigger problems, and engage with different buyers with vary­ing needs across the clinical and economic value paradigm.
  • It allows your customers to buy more broadly. While buyers today may be focused on sourc­ing deals for narrow product categories, there’s an increase in buying across product categories within departments, and some­times even across departments. Consolidation of suppliers is real.
  • It creates a durable advantage relative to smaller or niche play­ers. This is a result of servicing broader customer needs, particu­larly where hospitals are trying to lock down one or two suppliers.
  • It improves market power. This gets you access—a seat at the table with the most critical cus­tomer stakeholders, which you can use as an opportunity to improve relations and develop solutions together.

Sounds great, right? Unfortunately, there have been varying levels of suc­cess across the industry in translating these advantages from being theoretic to something that moves the needle. The reality is riddled with challenges, such as:

  • Pre-deal commercial due diligence may overestimate the incremental benefits of combin­ing the portfolios of acquiring and target companies.
  • Reluctance in portfolio rational­ization post-integration (deciding whether to carry all products or pull back on some products) drains valuable resources on less profitable products, and it also causes consumer confusion because of the diluted value proposition.
  • Cross-portfolio solutions aren’t structured, or are superficially structured and therefore don’t meet customer needs.
  • An unclear integration strategy undermines the power of even improved portfolios. Post-integra­tion go-to-market strategy is still very product-focused. Teams are still trying to sell products that they’re comfortable with, under­mining the power of the portfolio.
  • Many times scale usually comes from mergers of equals. Cultural clashes often inhibit collabora­tion across two entities.

The good news is that acknowl­edging these challenges can allow medtech companies to plan and execute these acquisitions in a way that not only brings scale but also growth, better customer relation­ships, higher profits and internal efficiencies. Here are five critical elements that you should consider:

  1. Portfolio rationalization: Not all products are or will be successful. Rationalize which products or combinations of prod­ucts in an integrated portfolio will best meet your customers’ needs. Embrace the idea that withdraw­ing some of your legacy products in favor of better overlapping acquired products or vice versa can be a good thing for customers, despite the perceived disruption such a move may cause. This also sets the right foundation to allow you to invest your resources in a way that maximizes your ROI. 
  1. Portfolio-level value proposition: Define what new offerings would look like for your target market segments and articulate the value proposition of these offerings. Analyze the monetiza­tion strategy, including bundling, pricing and contracting for prod­ucts and services. Make the commercial functions break the silos of product lines and verticals, and develop solutions and services that resonate with customers from the time when the two compa­nies were separate entities. Look beyond immediate returns and extend commitment and sponsor­ship to the longer transformation that the organization needs in order to shift from being product-oriented to solution-oriented. 
  1. Account- and customer-centric go-to-market strategy: Medtech commercial organiza­tions will need to “flip the model”—that is, transform from being field-sales-centric to key-account-centric. Invest time and resources to develop a portfolio-level go-to-market capability. Deploy roles like account managers to orchestrate selling and engagement activities in a way that’s more account- and cus­tomer-centric. It’s critical to group sales and marketing resources together in a way that seamlessly brings to bear the combined power of your entire portfolio or relevant groups to the market. 
  1. Incentives that promote collaboration: Many companies approach incentives as an afterthought to integration. You need to get ahead of the game and develop an incen­tive structure that eliminates the “my product, my quotas and com­missions” mindset to capitalize on cross-selling opportunities. The right incentives can help you move from pushing a product to serving a customer’s needs. Complement the incentive structure change with revamped metrics and busi­ness planning processes to align resources to common goals. 
  1. One company, one culture: Cultural integration should become a priority with direct governance from leadership. Communicate the vision early and often. Vision clar­ity will help prevent the attrition of top talent due to uncertainty. Move quickly to show tangible progress in bringing people together with unified HR policies, creative team-building and investments in building relevant skills. Define key metrics that can gauge progress on staff engagement and the alignment of the cultural vision to business processes and goals. 

Medtech companies can benefit from the potential advantages that come with size, but only if they also transform or at least adapt their commercial strategy and functions. Remember, size alone means nothing. Ask any of those tall and remarkably well-built men who competed against Phelps. They would agree.


BLOG POST: The End of the 'Features War': The Changing Definition of Value in Medtech

INFOGRAPHIC: It's All About All-Star Teams

Topics: Growth, medtech, m&a, Medtech Strategist, commercial strategy, company size, Michael Phelps, scale, competitive advantage

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Brian Chapman
ZS Associates
Tobi Laczkowski
ZS Associates
Will Randall
ZS Associates
Matt Scheitlin
Associate Principal,
ZS Associates
Andy Kach
Associate Principal,
ZS Associates
Bhargav Mantha
Associate Principal,
ZS Associates


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