Move carefully to the exit, veteran medtech sellers warn

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[Image by The Creative Exchange on Unsplash]

Beyond their altruistic and sales goals, medical device startups generally keep an eye out for the exit. Getting there requires planning, patience and persistence, according to a couple of medtech executives who’ve been through it.

Martha Shadan headed Plymouth, Minn.–based Rotation Medical, a private company sold to Smith & Nephew in December 2017, just three years after launching its regenerative shoulder repair treatment. Bob White has been through two exits, selling privately owned TYRX, a New Jersey-based maker of surgical infection prevention products, to Medtronic in 2014 for an up-front cash payment of $160 million, and public company Entellus Medical of Plymouth, Minn. in February for $668 million to Stryker. Founded in 2006, Entellus makes a family of minimally invasive balloon device products, including its flagship Xpress device, that are designed to treat blocked sinuses.

Shadan and White spoke at the DeviceTalks Minnesota event this week in St. Paul.

While White advised against building a company to sell it, both counseled carefully cultivating relationships with would-be buyers, making sure that the startup is on solid financial and regulatory footing, and that its products have repeat customers.

“We didn’t go out talking to the strategics saying we’re selling,” Shadan said. “We went out to the strategics to educate them. You run a fine line between being a pest and being appropriate in the timing and what you update them with.”

Although Stryker started looking at Entellus in 2009, the company wasn’t going to stand still waiting to be acquired, according to White. It continued innovating, launching 24 new products in the past few years while its big-league competitors, Johnson & Johnson and Medtronic, commercialized just a handful.

Being a public company and having so much of its information available to the public made the process of preparing for the sale easier than the due diligence that private companies must undergo. Shadan thought Rotation Medical was in good shape going into the process until Smith & Nephew came at it with 600 questions, many of which the smaller company couldn’t answer.

There’s no magic to knowing the right time to sell, however.

“There’s a little bit of science that goes into it, but mostly it’s gut feel,” said Shadan, now vice president of global marketing for Smith & Nephew. “It’s one of the hardest questions that I had to deal with as a CEO… In the throes of making the decision, I had to go on the best information that I had.”