Article - February 12, 2024
Members of our Healthcare & Life Sciences Group and Industrials Group recently attended MD&M West 2024, an event dedicated to elevating the world of medical devices. There, they saw the latest trends influencing the contract manufacturing subsector on display.
Two key dynamics creating optimism in the space are resolved raw material supply chain issues and reduced inventory stocking by original equipment manufacturers (OEMs). “The medical device contract manufacturing organization (CMO) market is normalizing,” says Taylor Will, a director in our Healthcare & Life Sciences Group. “OEMs are back on a typical ordering cycle, creating consistent demand and revenue for their CMO partners.”
Meanwhile, OEMs have returned their attention to R&D and product development. “OEMs are focusing on core competencies, ramping up new product launches, and outsourcing more business functions,” adds Will. “In fact, 510(k) submissions have increased by approximately 4.6% annually from 2020 to 2023, a clear sign that medtech OEMs have bolstered their new product development focus. This is one of the key drivers for new program growth for CMOs.”1
Figure 1: Count of 510(k) Submissions: 2017 – 20232
With these factors in place, medical device contract manufacturing has experienced strong M&A momentum over the past 12 months and will continue to do so.
Figure 2: Contract Manufacturing M&A Activity: 2023 – Present3
In this article, our senior professionals share the business attributes driving buyer interest and M&A activity in the CMO market, and how Harris Williams client Motion Solutions became a leader in the segment.
An Emphasis on Long-Term OEM Relationships
Across the medical device CMO space, the businesses being prioritized by buyers often share a highly sought-after trait: a sticky OEM customer base.
CMOs can achieve this by offering more value-added services beyond manufacturing, ranging from prototyping to commercialization. “Leading CMOs are engaging early in a product’s lifecycle, providing product design and manufacturability expertise while guiding the end product through complicated regulatory approval requirements,” says Tyler Bradshaw, a managing director in our Healthcare & Life Sciences Group.
Once a CMO is manufacturing a product, it’s particularly powerful to be specified in as an approved component within the regulatory body’s filing of the final device. OEMs typically avoid changing the approved components in a medical device as it requires re-clearing the product with the FDA. “This process includes costly and time-consuming regulatory hurdles, which adds to an OEM’s dependence on its established manufacturers,” explains Will. “When a CMO is specified in to the end device, it will typically continue to benefit as long as that device is in production.”
Finally, offering superior technical engineering capabilities can also create secure, long-term OEM partnerships and repeat business. “Having an engineer-to-engineer relationship with an OEM is highly valuable,” notes Bradshaw. “That technical expertise and shared language with an OEM allows the CMO to translate the goals of a device into a product that’s manufacturable at scale.”
Case in Point: Motion Solutions
Exemplifying the characteristics of best-in-class CMOs is Motion Solutions, which Harris Williams advised on its sale to Novanta.
Motion Solutions provides custom, application-specific engineered products to OEMs in multiple high-growth end markets, including medical, life sciences, semiconductors, robotics, and industrial automation.
As a precision motion specialist, the company collaborates with OEMs to engineer custom mechatronic solutions that enable the science behind its customers’ innovations. It also functions as a critical supply chain partner for customers through the development of highly engineered, specified-in components and subsystems on long lifecycle programs.
"Companies with precision mechatronic engineering capabilities are highly desirable, especially with the attractive customer profile of Motion Solutions,” says Jenson Dunn, a director in our Industrials Group. “Its expertise in developing repeatable, sub-micron motion subsystems across high-technology applications is a key differentiator and positions the company for continued growth.”
Focusing on End-to-End Capabilities
Throughout the medical device CMO subsector, secular trends, a normalizing environment, and rising OEM innovation are generating increased M&A momentum.
Growth in the space will continue as OEMs focus more on their core competencies and new product development, leading to an expanding need for outsourced development, pre-production, manufacturing, and post-production services. The most sought-after CMOs are providing these end-to-end capabilities from concept to finished goods and partnering with OEMs for their most complex products.
To discuss the value-creation potential within medical device contract manufacturing, please contact our senior professionals.
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