Successful M&A Exits in the Consumer Healthcare Device Market
Consumer healthcare devices are everywhere. They help people track physical activity, measure caloric intake, and play a vital role in personal health and wellness achievements. Driven by consumer engagement, technology proliferation and a billion dollar-plus market opportunity – investors are pouring millions of dollars into this market with the hopes of a big return (see examples below). Public exits (IPOs) are tough, so the path to liquidity for many of these firms will be acquisition.
Consumer healthcare devices are everywhere. They help people track physical activity, measure caloric intake, and play a vital role in personal health and wellness achievements. Driven by consumer engagement, technology proliferation and a billion dollar-plus market opportunity – investors are pouring millions of dollars into this market with the hopes of a big return (see examples below). Public exits (IPOs) are tough, so the path to liquidity for many of these firms will be acquisition.
- $70 million raised by Bluetooth headset maker to enter health monitoring market.
- $50 million raised by mobile consumer focused diabetes management system.
- Best Buy invests in mobile fitness ear bud technology.
Few companies have yet reached a size and adoption threshold to be deemed a success, but as the winners emerge product design, value proposition, access to customers, defensible intellectual properly and ability to integrate will factor into their strategic paths. Here is a check list for the CEOs who are considering an exit in the next 8-10 quarters:
- Competition – Separating from the pack of consumer health device companies is difficult. There are dozens of credible companies and scores of wannabes (100+ according to our market definition). While most of companies in this category are below $15 million in annual revenue, the strongest players have venture backing, cash reserves and relevant consumer and healthcare experience sitting on their Board.
- Customer Adoption – Consumers are tough critics and prone to device abandonment. Winners in this category with figure out how to provide a consumer health device that is easy to use, convenient, and effective. Also, given that consumer health devices today attract a narrow user based, successful vendors will figure out a way to expand adoption and find a broader audience of which to market and sell its product.
- Distribution – Signing a big distribution deal can be the best way to gain quick, sustainable market exposure. For these vendors it can be a great way to develop a strong, sustainable partnership that could lead to M&A down the road if the partnership is successful. Especially in the consumer market these major distribution channels can make or break a business in the early innings. Acquirers will look for devices that can be sold effectively through multiple channels. Winners will maintain a broader sales strategy and not become dependent on a single distributor, which makes the business susceptible to channel risk and unattractive for a premium M&A event.
- Finding the Right Business Model – This is the biggest stumbling block for most consumer healthcare device companies. In most cases, larger companies are less acquisitive when a business cannot demonstrate a scaleable business model. Many vendors in this space simply want to achieve user adoption at the expense of a longer-term revenue plan, when they should be thinking about keeping customers over a five year (or longer) period.
- Recurring R&D costs – Companies in this market must continuously re-invent themselves with smaller, sleeker devices. This can be the most taxing aspect of the market and certainly hurts a company’s chances of becoming highly profitable, especially when they are investing in growth. Manageable cost structures, vertically integrated manufacturing models, web-based user interfaces and other features are all relevant to a complete product experience.
TripleTree has monitored the consumer health devices space for years and we’re bullish about the prospects for continued innovation and growth. We’re watching the emerging companies address consumerism in thoughtful and innovative ways and look forward to watching the evolving strategic relationships between these innovators and global players.
Let us know if you have additional thoughts on this market or a different perspective.
Michael Boardman
Michael Boardman is an associate at TripleTree covering the healthcare and technology industries, specializing in clinical software solutions. Follow Michael on Twitter or e-mail him at mboardman@triple-tree.com.
