Earlier this week, Gilmartin’s Founder & CEO Lynn Pieper Lewis hosted a webinar with J.P. Morgan’s Annie Wernig (Managing Director, Healthcare Investment Banking) and Benjamin Burdett (Managing Director, Healthcare Equity Capital Markets) to discuss insights, trends, and 2023 expectations for public and private MedTech companies. Here are our key takeaways:
Key Takeaways:
There seems to be a cautiously optimistic tone around the MedTech industry and an increased focus on private companies and opportunities
- Early sentiment entering the year was positive – during the JPM conference in January, ~30 MedTech companies pre-announced results or provided directional color with many revenue consensus beats supported by optimistic management tones
- Importantly, investors are also engaging in fundamental analysis across both large-cap and earlier-stage companies, particularly on the private side
- Overall, while a degree of market volatility is expected to remain at least through the first half of the year, 2023 is starting off with increased optimism among investors with both macro and micro-driven tailwinds expected to continue through the year
M&A, IPOs, and follow-on offerings may be more prevalent in 2023 vs. 2022
- We have already seen a few notable M&A and fundraising announcements in 2023:
- This trend is expected to continue, particularly as MedTech valuations further stabilize and access to capital at terms remains
- However, ongoing volatility can still make it difficult for parties to align on valuation
- For M&A, we are seeing incrementally greater focus on companies or assets that are close to breakeven or have a clear path to profitability
- For IPOs, while the specific timing of a window opening is up for debate, there is an expectation for a medium amount of activity in 2023, with the first wave including more scaled companies that will likely set a sense of confidence for others
Investors generally expect companies pursuing an IPO to have ~$100mn in revenue (or a strong execution path) and a cash runway to achieve break-even
- There is no hard rule on reaching profitability at a specific revenue threshold as there remains an appetite for growth companies if they can scale to profitability efficiently
- Bottom line, it is important for private companies to maintain access to capital and demonstrate a strong execution path
Privates can start to engage with institutional investors ~18-24 months before a potential IPO to build upon their investment story and strengthen relationships
- You do not want to be on the verge of going public and not have talked to investors, and 18-24 months before a potential IPO is a good timeframe to begin having those discussions
- If you are further out from an IPO, having some forward-looking information could be beneficial
- On the other hand, if closer to an IPO, you need to be sure that you can execute on what you disclose
Public companies can differentiate themselves by meeting/exceeding expectations (guidance), messaging effectively, and showing a path to profitability if possible
- Setting and delivering against realistic expectations is important – inflated expectations have short-term benefit but a long-term risk of value destruction
- At the same time, don’t forget to prioritize IR and develop relationships with the types of investors that are focused on your sector
Implementing a shelf registration (Form S-3) is encouraged, and generally viewed as good corporate housekeeping
We are still seeing a lot of volatility in the market, and it is smart for companies to take an opportunistic approach to raising capital
- Given the amount of risk in the broader market today, understanding your options is important, and it is prudent to think about capital raising opportunities early on and prepare beforehand where possible
Gilmartin Group has deep experience working with both private and public companies in MedTech and across the healthcare space. For more information about how we strategically partner with our clients, please contact our team today.
Authored by: Elizabeth Sparicio, Analyst, Gilmartin Group