The growing capital availability and recent tax cuts have brought M&A in medical technology in the spotlight. M&A remains high at a historical pace. However, not all deals lead to huge success. According to estimates, between 30% to 50% of transactions fail before the deal is sealed. Startups, small and medium-sized medical companies suffer from these botched deals. This happens when exit strategy for the start-up goes wrong.
The medical device company leadership must understand the causes of transaction failure throughout the business lifecycle. Identifying these issues helps in driving value in the present and in the future.
Though all leaders have a thorough understanding of growth drivers in M&A, not all hold significant discussions on the causes of failures. Smaller companies know that innovation, margins, and market share drive growth. A startup achieves a successful exit with maximum value when it takes appropriate steps for increasing the sale price.
However, unpreparedness plagues exit for medical device startup. Wrong decisions by the leadership reduce the final profits. The underlying issues hurting successful exit strategies include:
A medical device startup must address these issues regardless of its size and exit timing. While planning with “end” mind, it is equally important to prioritize exit strategy preparation. Even when the medical startup is not planning to exit in the near future, it must start planning from today. Early and proper planning for exit for medical device startup offers major benefits. It improves stakeholder communication. Suppliers, board, management, shareholders and employees drive better corporate disciplines. This creates a positive impact on financial performance. This also increases the enterprise value for the future exit.
Large businesses have a great capital. They can withstand external stresses. However, many startups and small medical device companies are incapable of dealing with outside dynamics. Market demands, regional economics, interest rate, industry trends, competition and other outside influences are not in their control. The focus must be on activities that consistently improve the intrinsic value. The startup must work on management strength, intellectual property, growth rates, sales team efficiency, vendor relationship, customer diversity, margins and geographic coverage. Consistently reviewing these topics maximizes organizational value. The leadership must incorporate short-term and long-term strategies to manage and address these issues.
Both internal and external stakeholders must be on the same page for current and future performance prospects. All key stakeholders must have aligned expectations to ensure consistent improvements in the performance. They have to work in unison to achieve the same goal. However, this is difficult to accomplish without a tactical communication strategy. This strategy helps stakeholders in working together to achieve the desired results.
There must be an agreement on objectives and corporate performance measures. It is important to align stakeholders’ goals in all stages of business growth. Communication must remain transparent throughout the organization.
Aligned goals and consistent, transparent communication are critical in achieving maximum performance and planning for a proper exit.
These issues may not be limited to geography. However, it is equally important to address regional differences. This ensures the greater corporate interest by assuring transparent and aligned accountabilities. The leadership must identify and discuss issues regarding employee diversity. Fully understanding internal cultural issues helps in resolving challenges a medical device startup faces during its growth. Open conversation is the best way to overcome cultural issues.
The business must consider this issue prior to the actual purchase agreement. Earn-outs increase overall company value and close any possible valuation gap between both parties. The organization must consider the earn-out structure before it conducts a transaction.
The present MedTech environment has created cross-border opportunities for startups. However, this presents unique challenges. It is difficult to manage stakeholders in different countries in the same way. Though the business needs to ensure fair and consistent treatment, this is relative to specific locations. The organization must have similar values and policies to value and treat stakeholders. This is important to generate positive results and maximize value. Equal treatment results in greater global corporate success.
Stakeholders in startups work extraordinarily hard towards new innovations, product launch, market growth or other goals. Strong emotional attachment to the organization is expected especially in a family-run business. Owners often think about the impacts of the exit on stakeholders. The owner can maintain stakeholders’ loyalties by rewarding them with the future outcome of the exit. The owner must consider this possibility early. All key stakeholders must feel valued throughout the growth and exit.
The best way to ensure a successful exit is working with a medical device consulting company expert in exit for medical device startup.