Medtech M&A in 2023: Where Do We Go From Here | LSI USA ‘23

Transcription

Scott Pantel  0:00  

I want to welcome everybody to sun came out, we'll see how long that sticks. We have a great session lined up. And I want to thank John Babbitt for organizing the session. And for being such an important partner, Eli's a huge partner of what LSI is doing here. And so I want to thank him for that, and pulling together this terrific group of panelists. I'm going to just turn it right over to John, I think everybody knows him, but I'll let him give a short bio on himself. We'll get at it. We have this on panel philosophy that we're adopting, which is that we'll get into it quick. And we'll challenge each other. So over to you, John. Thank you.

John Babitt  0:40  

Yeah, no, thank you, Scott, and thank you to the outside conference. It's always great to be here. It's even better when the sun is out for when it was raining, just reminded me all those miserable JPMorgan conferences. So thanks. Thanks for bringing us SoCal to the house. John Babbitt with EY going to be hosting this m&a panel. And, you know, I think it's really appropriate that we had the strategic spill the tea, we had the strategics tell their story. And now we're gonna get into where it all kind of comes together with med tech m&a, and a real diverse perspective, you'll hear we're gonna have really opinions from all sides of the equation. And we'll get things started, we'll let the everyone introduce themselves, give you a little bit of their background. And then we'll go through a handful of slides just kind of frame out what the current state of medtech is from an m&a perspective. And then we'll get into detail q&a. So with that Bennett, do you want to kick things off? You guys. Just keep talking.

Bennet Blau  1:44  

Well, it's it's great to say see everybody here today, I've been at Blauw, managing director with Goldman Sachs I help oversee, I think I've met many of you in this room. I helped oversee our medical devices franchise in the investment banking division. And so we work with companies large and small from some of the largest public companies, obviously, within the medtech universe, to many of the emerging and digital health names, which are really creating some of the most exciting technologies out there, impacting patients impacting clinical outcomes. So pleasure to be with all these panels. Say, John, thank you for hosting us.

Matt Tomkin  2:22  

Great, Matt. Matt Tomkin, VP of Corporate Development for Teleflex. Been with Teleflex since 2015, started my career in public accounting, and was looking for a little bit more excitement in my life. So I made my way to m&a. And for those not familiar, Teleflex is a global publicly traded medical device company. We've got almost 14,000 employees, just under 3 billion in revenue, and a diverse set of product portfolio spanning from interventional cardiology to interventional urology, surgical anesthesia, vascular access, emergency medicine, and an OEM division as well. And we've been very active from an m&a standpoint, we've done over 80 deals since 2011, including transaction values over $5 billion. So pleasure to be here and look forward to the discussion. Now I look forward to Matt

John Babitt  3:13  

and Greg.

Greg Banker  3:15  

Yeah, thanks, John. And thanks for organizing this Greg banker within Santa capital. We're a med tech focused VC firm. We have a team of six spread between Minneapolis, the Bay Area and the DC currently investing out of our second Fund, which is a $325 million fund, investing in med tech broadly defined as anything outside of drugs. So try to build a concentrated portfolio over the next few years of 12 to 14 companies, which works out to be average kind of check size at 20 to 30 million per company over the life of an investment but can start as small as 10 relatively stage agnostic kind of a natural entry point for us is kind of post first and human data. So we'll find a pivotal study, we'll fund commercialization, but we've gotten earlier out occasion as well.

John Babitt  3:53  

Great, thanks, Greg. John.

John Kilcoyne  3:54  

Okay. John Kilcoyne the President CEO of valve located in Irvine. We're currently in development of a word of mouth for both aortic regurgitation as well as aortic stenosis. We have an approval in Europe for the dual indication. We're currently just completed enrollment or clinical trial in the United States. We look to file our PMA at the end of this calendar year with an approval sometime in the second half of 2024. But 170 folks that work in valve, currently, over the course of my career, I've had the opportunity to work in multiple different disciplines. As a CEO This is the fifth opportunity to have had to run a company both worked in private as well as public PMA, 510. K, taking cut company called Microsoft have asked go public on the NASDAQ exchange which resulted j&j And Peter Stebbins is here somewhere in the audience, at least he was and I thank you again, Peter for for the acquisition. It was a life changing event for me, as well as my family, but thank you for that. That it's a pleasure to be here and look forward to sharing my thoughts. Add to your with your good. All right,

John Babitt  5:02  

thanks, John, I just realized that I need to get the clicker to advance the the handful of slides that we had. So just started out with thought we T things up and get things started. Hopefully they can bring those up. If not, we'll just go into the questions. Course you guys start with the disclaimer and got the panel. But really, as we sit here, kind of coming out at 2022, and going into 2023, it's an interesting time of reflection, that was kind of the title of the panel that we propose, which is, you know, what comes next, we've kind of put COVID in the rearview mirror, so to speak a little bit. There's a lot of normalization of the med tech industry. And so what does come next and, you know, just to give a flavor for this, med tech returned to a growth rate of about 6%. Last year. And you know, as we kind of exited the the tween tween to roughly a half trillion in revenue for the first time so that the industry emerged out of COVID, you some would say stronger and more robust than ever, with good prospects going into 2023. But what we saw last year in these middle columns is that, you know, from stock price to total financing to VC capital, all of it was on the decline. And so, you know, begging the question, what comes next, and m&a activity in the second half of 22 was was pretty, pretty sparse, we did have the one big j&j deal, but outside of that, not a lot of activity. And so, as we came into 23, you know, a handful of deals, looking, you know, some green shoots. And so, you know, I think it's an appropriate time to ask, you know, really, what does come next. And so, you know, on the back of that what we also have are some real headwinds within the industry. And we, you know, we saw a lot of the hospital staffing shortages really remedied themselves, but, you know, we're still hearing some issues in the ecosystem. Exchange rates have impacted earnings for a lot of the large OEMs. And that, that's, you know, a headwind on the revenue. And, you know, on top of that, now, we have some financial distress with some of the recent bank failures, how does that impact things, all that and when you look down the p&l, real inflationary pressures for large OEMs. And so you've for the first time in a while, you've heard about cost cutting measures, and you know, things like supply chain, and cost cutting, rising to the list of priorities for large OEMs. And then you have a lot of these local issues that all of a sudden kind of crept into the, the calculus of the large OEMs as well, like, you know, China, volume based procurement and things like the Italian clawback. And no, that's not just a bad drink in Rome. But looking forward, you know, when you know, COVID hit, it was actually kind of the best of times for med tech. And, you know, this is a graph that you can see, kind of going across the x axis that looks at large, or I'm sorry, high growth, med tech revenue companies, and what multiples those are trading at, you can see, in the era of COVID, we actually hit a peak of about 16 times forward revenue. You know, that declined over the last year. And now we're seeing at a rate that's about 7.3 times for revenue, most of those noticeably at the bottom of the graph, you can see the IPOs. And you can see in 2022, last year, we didn't have any. And so now we have a couple that I think have gotten out this year, and some in registration, but still not a real viable exit. That's one of the things we'll talk about how does that feed into m&a as well? Just a couple metrics that will feed into the ecosystem here. If you look on the the top part of this graph, it shows the number of deals was down last year. But if you look at the bottom of this graph, it shows you that actually the takeout premiums were up. And I think, you know, one of the things that this indicates is that good deals are still getting done, and they're getting done at a premium to where the market is. And so with that as the backdrop, I think what we'll do is turn to the panel. And you know, we heard a lot from strategics already. And so Greg, maybe start with the VC perspective, you know, boiling it all down to the m&a environment. I mean, we got some headwinds. We have some tailwinds. But what does this all mean for m&a as you sit here and look at your portfolio going into 2023?

Greg Banker  9:35  

Yeah, that'd be comment. Thanks, John. So, you know, I'll take maybe the tailwinds. First, I think I have a little bit more of an optimistic view of the current ecosystem. So while it's gotten harder, I think in this current year to sort of raise new venture funding, if you kind of look at the 2020 2021 and 2022 vintages there were a lot of new funds raised. And so if you just think about the dry powder and capital that exists with firms that do invest in that tech, I think it's pretty healthy, I think you're talking on the order of, you know, seven, several billion dollars available. You know, on the other side, as we think about kind of the strategic landscape, you know, if you think about the number of strategic companies that have a market cap of $20 billion plus and have healthy cash balances and debt available, you know, our list is probably 20 companies long, if not more, and that's why three to four times what it was and kind of the 2009 era. So I actually think, you know, from a capital and exit environment, I think we're actually in a better spot than we were probably in 2009. You know, as we think about headwinds, you know, I think one of the challenges and you alluded to this, John is, you know, many of us are funding developing and launching novel technologies in the hospital systems, and many of our hospital systems in this country due to COVID are in the red, right. And so we're trying to change behavior, drive adoption of new technologies, when a lot of these groups are just trying to keep the lights on doing what they do normally. And so I think it creates, you know, difficulty on sales cycles, difficulty on sort of launching new technologies, and it's just, it's a different environment that we've had to commercialize. And now that we have in the past, I think the biggest question, you know, for us at the VC side, and as we talk with our portfolio companies is just what's the realistic time to exit right? As we talk to our advisors and bankers and strategics, you know, the perfect exit candidate is something that's not dilutive. Right, it's commercial stage. And so if you think about the amount of capital and time required to take a company from development through clinical trials to regulatory through establish reimbursement and then building up a Salesforce, it's a long time, right. And obviously, some inefficiencies there when you're sort of funding a Salesforce at 20 to 50 people when your strategic acquirer may have a sales force of three to 400. And so I think as an industry, it's something we got to continue to work on is how do we make you know, our companies and our ecosystem have earlier exits in an environment that's really, you know, dilution sensitive from a p&l perspective, just because I think the longer that we have to fund companies to exit, the more and more pressure puts on the math, and candidly, the more pressure puts on for sort of early stage investment.

John Babitt  11:53  

That's really insightful. And maybe to just pull that thread a little bit, John, maybe I mean, you guys did a big capital raise over this last year. I haven't a window and IPO window, we're relatively shut. So what was it like going through that process? And do you think we'll see any changes in that dynamic here in 2023?

John Kilcoyne  12:13  

Yeah, I think the Thank you, the company did complete $100 million financing in September of last year, which was a little bit contrarian to most other companies ability to raise money. And I think that stems from a number of things. One, it was a long process. It was well over a year long process. And quite honestly, our strategy changed a little bit as we went through as the IPO window, at the beginning had some semblance of B being opened, that they sort of cash that we had raised might get us to a public offering. As we went further into the raise, it clearly became evident that the the IPO window was probably not going to be open, and more than likely it was going to be closed. So the use of proceeds no longer became a bridge to an AI potential IPO, the use of proceeds became a runway to market reopening, which, you know, not knowing where that market is going to reopen or when the markets going to reopen the the amount of cash required to get us through that runway. doubled in our expectation, and our fundraise went from about a $50 million initial target to $100 million target. The good news for us is that we have an outstanding product that's doing extremely well in Europe, we have a CE mark both AR and a US and Europe. The adoption has been good, the clinical outcomes have been good. The feedback from our clinicians has been really good. So we have a tailwind with positive clinical data. And as a medical device company. Data is your capital along with IP. But data and capital this year is extremely important that we also have a good IP portfolio. But with that data and combined with the ability to learn as we went along in the US as to how to enroll how to get patients into the trial and treated. Our enrollment accelerated towards the back half or excuse me, the spring of last year enabled us to complete enrollment. So we had really nice stories and milestones to express as to why that we have forward moving progress, that the opportunity valve is significant. We just needed a little more runway. With that we were also blessed with a very strong syndicate existing at the time. The existing syndicate as we went into the fundraise, led by Bain Capital, Bain was our series B lead and actually been stepped up and led our Series C which provided us a great foundation man is a household name. It is the good housekeeping seal of approval. And they were very supportive in the in the series C which allowed us a significant throw away going into the market when you combine that with great clinical data and IP, and were able to close on a financing. So the tailwind for us coming out of 22 was very positive. Now, the headwind going into 2023 is just as we've described here as the public markets, the rising interest rates, the political uncertainty that plays into the mix. Yeah. And so the good news, again, optimist, that we have cash runway to the end of 2024. And I do believe the market will open up at some point during that period. And give us a potential window to jump through.

John Babitt  15:36  

Yeah. And Matt, maybe bring in kind of the large OEM, you know, point of view with I mean, the the headwinds, the tailwinds. And does that change your your strategy? does that present more opportunity for you to get more aggressive? Or do you really kind of inward focus and you know, more on the, you know, cost cutting or some of the other things that we've heard other large OEMs mentioned?

Matt Tomkin  15:59  

I mean, I think for for companies like Teleflex, that have a strong balance sheet, we're gonna continue to prioritize m&a. That's how we've grown historically, that's how we're going to continue to grow. You know, and while it's, you know, you pointed out that public company valuations have certainly come down. You know, if you look at the more attractive publicly traded entities, they're still trading at high multiples. So it's not like everything is suddenly all of a sudden just become affordable. And then you've got this, you know, this, this high interest rate environment, which is obviously here to stay, at least for some time. And it's, you know, you've got this dynamic between high rates, and still high transaction multiples, where, you know, that dynamic seemingly can't coexist, if we're gonna get back to the kind of normal level levels of m&a activity. So, you know, we're going to continue to do what we've done. Every company like us is focusing on cost cutting, and, you know, those are announced in our in our, in our, you know, investor presentations, but for the most part, we're focused on how are we going to grow going forward, and it's going to be through m&a?

John Babitt  17:06  

Yeah. And Ben, and maybe Ron decide, I mean, you obviously have a lot of clients that are active in the m&a space. I mean, are they thinking more opportunistically about that as they're kind of going into 2023? Or are they battening down the hatches? Yeah, I'll

Bennet Blau  17:22  

make a couple of observations. Thanks, John. I, I think, you know, first and foremost, if you think about med tech, m&a over the course, the last three years, really, we've had one giant deal. In each of the last three, three years, we've had the privilege over the course of last year, obviously in selling biomed to j&j. The year prior to that, you saw a deal where Hill rom got sold to Baxter. And the year prior to that, we had sold a company called Varian medical systems radiation oncology business to see Siemens Healthineers. So if you think about the largest kind of types of deals that we see within Med, tech, m&a, these are not deals that happen every day. These are not deals that kind of we see every quarter, they kind of at least over the last several years, we've seen them on kind of an annual basis. And so I think from that perspective, when we speak to clients about big deals, transformative deals, that level of activity remains, I actually think, quite, quite robust, quite robust. As you start to scale down into mid cap smaller cap companies, I'd say the the the level of screening for public companies, whether it's relative to 52 week highs, whether it's relative to various view ops, the intensity of activity, in terms of that type of screening has certainly accelerated meaningfully. But the interesting thing is, if you think about it, at least, you know, from a from a banker perspective, from a board perspective, whether a private company board or a public company board. Of course, there's there's a affinity to past trading. But yet at the same time, the actual metrics that we care most about are intrinsic measures of valuation, things like cash flow, and discounted cash flow analysis, and so forth. And what I what I'd say is the even though those those those forecasts have come down, somewhat, in many cases, the level of their decline has been much more modest relative to the decline in public market valuations. And so I guess what I leave leave this group with in terms of headwinds and tailwinds and opportunity is m&a, dialogue and activity, certainly, in terms of what we're seeing here at Goldman Sachs remains quite robust. But it's also incredibly idiosyncratic. It's it's more idiosyncratic than we've probably seen in the last decade in terms of how large companies are evaluating the ecosystem to see how and where they want to play. There is a general rule willingness to deploy capital, again, it needs to be in the right strategic areas. But by no means do I think the volatility has kind of stamped. You know that that sense of opportunity from a m&a perspective. Yeah.

John Babitt  20:12  

And maybe just a follow up question, because I, it's been interesting. We've seen a handful of public companies now get taken out at those historical 52 week highs. And now all of a sudden, you know, we're coming into April, May, the, those 52 week highs are getting further and further in the rear of rearview mirror. I mean, will we, you know, perhaps see more of that type of activity that, that now that it gets a little bit further in the in the distance?

Bennet Blau  20:41  

I certainly think that's that's the expectation, John, I think, you know, it's, it's kind of ironic, because, again, you know, the 52 week high is nothing more than a historical reference, as opposed to a fundamental assessment of the value of companies. And so, but But I do think that as a reference point, that has been quite important in terms of many of the discussions that we've had. And so whether that means that those that sellers that are willing to transact, perhaps there's a resetting of that expectation, I think we've started to see some resetting of that. More recently. I also think it's highly, highly dependent on the balance sheet strength of the particular company. And I think what you're seeing today in the m&a world that we see day to day is, it is more important than ever, for med tech companies to really control their own destiny, in terms of having a plan without a predetermined exit by x date. There, I realized that's easier said as a banker than that actually done. But I think that the importance of having that credible standalone plan is greater in today's market with this volatility than again, we've seen in many years. And you know, there's a saying in in m&a, which I think now resonates more in this market than ever before, which is, you know, companies really get bought, not sold. And so being able to chart that own standalone plan, and set yourself up for an exit if there is an approach. But again, having a lot of conviction in that standalone path, we think is more more important than ever.

John Babitt  22:29  

Yeah, know that that's going to be interesting to watch, unfold here over the next six to nine months. And, you know, speaking of which, when we put this panel together, one of the topics not on was was some of the financial dislocation, that that's occurred recently with some of the bank failures, and not that that has maybe a direct impact on m&a. But it would be curious, maybe, Greg, you have a perspective on this, you know, from a VC lens does dissolve this uncertainty within the financial system? And just what's what's been created? Does does that create any opportunities from an m&a perspective? Or how are you guys viewing it from a VC lens?

Greg Banker  23:11  

Yeah, it's a it's a great question, John. So I think, look, I think if nothing else, I think equity financing becomes more important in the coming environment, just because, you know, venture debt has been a very significant, you know, way to boost runway, it's less diluted to founders and an existing syndicate. And so I think to the extent that that's less available, I think it puts puts more pressure on companies to have really strong send the kids to have, you know, firms like ours that are reserving and making sure that you can go along if you need to. To your point, I do think it does create some some m&a opportunities, potentially, as well, because you're gonna have some really high quality companies that, you know, potentially can't get a financing done. And so they do look to sell earlier, and maybe they don't maximize value as much as they could have. But so I think it can work both ways.

John Babitt  23:53  

Yeah. No, I think it'll be interesting to see which way it cuts. But I think net net is going to increase activity, for sure. And Matt, one of the things we talked about was, you know, some of the costs kinda for but I one of the things that we hear a lot is around capital allocation. And, and so it is an m&a panel, divestitures and spins are certainly quite the rage across corporate, you know, med tech these days. How are you guys at Teleflex? Thinking about that as one of the, you know, arrows in your quiver that you can use to maybe solve for some of the pressures?

Matt Tomkin  24:31  

Yeah, I mean, the way that we think about it is, we're still given our size primarily focused on acquiring businesses. So we don't feel like we're too large where we have to divest something or spend something off to unlock some value. But we do occasionally look at our portfolio for pieces that are non core, slower growth, lower margin, may be better in the hands of somebody else with a little bit more focus, more investment. We've demonstrated that we sold our respiratory business to Medline and 2021. But you know, when you when you really look at some of these pieces of the portfolio, some of them generate a lot of good cash flow, because then you don't have to invest in them that much. And so that cash flow helps support some of the high growth franchises. So I think as a whole, we'll continue to look at Portfolio rationalization and consider it, but our primary focus is on acquiring companies.

John Babitt  25:23  

Yeah, no, I know, it's always sometimes it's interesting when companies go public with the financials of the parts of the organization that they're divesting, and the street is caught off guard. But while I knew it wasn't growing, but it was actually really profitable. And, and so that's always one, one thing to pay attention to, before you kind of head out with that for sure. John, would be curious to get your input, because, you know, you guys large capital, raise the public debt markets? And was that something that you guys looked at as, as part of your evaluation, when you're evaluating capital sources? And is there still opportunity there for companies really, to tap into that as a source of capital?

John Kilcoyne  26:11  

Yeah, I mean, look, we we have a situation now where the the exits are being compressed. The strategic view, the IPO market is not available, the teachers can sit back and wait, and they're very content to allow companies such as ourselves to minimize their risk and spend, you know, spend forward to put the company in a better position. So I think it's the whole non on us as the operating group to look at all avenues of available cash, we had debt, the licensing or be at equity, I would agree that equity, there's continued benefit to an equity, but the debt side, there's a certain percentage of debt that you want to maintain, not exceed, as it becomes an overhang for potential investors coming in or being you know, the exit. But I I do think that is a viable option. I think we're we're also seeing that some of the debt lenders, particularly our transaction, they're also introduced, interested in the equity component of their debt. So we looked at multiple different avenues to maximize the cash maximize the runway. And I think we'll talk maybe a little bit later about a licensing arrangement made with a with a group in China. Yep. So yes, I do think there's opportunity, I think companies would be wise to not close any window to financing because we don't know where the back end of this this IPO market.

John Babitt  27:36  

Yeah. And, Ben, we're hearing a lot about the spins, we're hearing that the credit market is improving, is that going to be a viable option? Will Will private equity somehow return to the table here in 2023? Yeah, look, I

Bennet Blau  27:52  

think if if there's one tailwind that I would highlight, heading into 23. And beyond it is the amount of capital that financial sponsors broadly defined, continue to have available to deploy. And if you think about, obviously, the traditional LBO market, that that has be become exceptionally difficult. From a debt financing perspective, just given where rates are given where debt structures have moved, and so forth. I think the reality of the matter is that there is a lot of equity capital, there a lot of a lot of cash on balance sheets for sponsors to deploy, I think that has actually led to pretty creative financing structures, where in some instances, you actually see more equity put into deals than perhaps we've seen in the past because of that. I think one thing, you know, folks need to remember is, you know, these, these firms, for the most part are incentivized and in how they're structured to actually deploy the capital, and to actually put that capital work. And so I certainly think if you, John, were to ask me, you know, what is kind of one of the sources of capital that we would see more activity from in 2023. That'd be at the top of my list. Yeah,

John Babitt  29:05  

it was interesting. When we were at JP Morgan, I think the glass was half empty. Still, and what I'm hearing is that it's not maybe half full, but it's it's certainly get getting close to there.

Bennet Blau  29:17  

And we've seen some improvements. I think that's far from being, you know, far from being full. But I think the markets are moving notwithstanding the last couple of weeks or that we've seen in the right direction.

John Babitt  29:27  

Yeah, and I think the other maybe Telling Signs, we haven't seen it in med tech, but we've seen private equity be more active now doing larger deals. I think there were a couple billion dollar deals that were announced this last week. And so that like gives, I think, hope that that then cascades into med tech where where appropriate. One area where, you know, valuations took kind of a big hit was healthcare IT and in the middle of that, you know, John was out there raising 100 million. And Greg, you were putting gonna write a big check to company called clearly, which is in the AI space, healthcare technology, maybe tell us a little bit about, you know, just that investment and the healthcare IT space and why that is a unique situation to be be involved with.

Greg Banker  30:20  

Yeah, happy to Johnson. This geometry clearly is a digital health company based in Denver, Colorado, they have AI software for coronary artery CT assessment, where they basically have a proprietary algorithm that risk stratify and phenotypes, patient Blackbird, and the risk for EMI, or myocardial infarction. And, you know, we led the series B, when the company had kind of had a developed product. And recently, the company in the last year raised $220 million round. And so quite a large round, obviously, for a company in our space, but it was led by a large syndicates are large crossovers. And, you know, when we think about how tech kinda in the context of clearly, we don't view it too differently, actually, than our medical device investments. So this is a product that's regulated by the FDA, it's going to be prescribed by a physician, it's probably going to get majority of its commercial traction from a fee for service paradigms is going to need coding coverage and reimbursement. And they're targeting sort of two unique markets. One is, you know, there's 10 million patients each year that have symptomatic chest pain that gets some sort of non invasive imaging, many of those patients go on to get an unnecessary catheterization to find out that they don't really have severe disease. The flip side is there's, you know, a growing problem for patients that show up to the eye was a heart attack for the first symptom, depending on what data you look at 70% of patients have a heart attack, their first symptom is having a heart attack. And so there's kind of these two paths, right, the patients that are in the system today, versus the patients aren't even seeing it cardiologists are not, you know, on statins are not, you know, optimally medically managed. And our belief to unlocking both of those opportunities is really strong clinical evidence, right? Large, well powered, randomized controlled studies of long term follow up. And so the goal is capital raise was basically to pursue those kinds of strategies in parallel, in what probably represents one of the biggest teams in medicine, you know, if we think about just prevalence of disease, and clinical unmet need. And so the goal of the company, I think, is really to kind of have sufficient financing to sort of run those studies to fruition, and not have not been a spot where you sort of have to finance in the middle of a clinical trial, which is, which is always tough.

John Babitt  32:21  

So yeah, it was interesting. I think med tech drive announced their top 15 med tech companies are to keep an eye on. And literally half of them were AI companies. And so I'm sitting there wondering when you know, Greg's gonna start buying AI companies, but maybe give us a little bit of, you know, insight, who is the likely acquirer for a company like that, because our history has been, or just our experience is that it's the payers, and then the providers, and then med tech third. But,

Greg Banker  32:55  

ya know, it's a discussion we have internally every week, you know, I think the case studies on digital health are still being written, right. Like, there's been a ton of capital deployed in this area, I think, a ton of clinical value proposition, but you know, who acquires them? Right, it's still sort of an unknown. And so I think one of the things that we think about is just, you know, we talked about kind of companies are, you know, they're bought, they're not sold. And so, you know, as we think about kind of a case, like, clearly, you know, I think if you have a really big Tam, you have really strong clinical evidence, you believe you have sort of a, you know, a decade long runway to sort of penetrate into a prevalence pool that's really large. I think it justifies raising a sufficient amount of capital to do to market development work to do the clinical study work. Because I think those companies would struggle to get that same capital allocation within a strategic and so, you know, I think many of these companies could be acquired, but I think, you know, many of them will probably have, you know, sufficient markets to be independent companies and go the public market route once it reopens. So, ya

John Babitt  33:49  

know, it's certainly admirable, it'd be an interesting space to watch. It's a little bit of the certainly the buzzword right now. And it'd be interesting to see how med tech plays in that sector for sure. Go ahead.

Bennet Blau  34:01  

I might just add to that as well, I think, you know, you noted, John payers, which I think are kind of front and center based on the traditional models that we've seen in m&a. I think there's, there's been a convergence, as you think about large strategic acquirers across traditionally, buckets that have been thought of as very different. So you think about, for example, CVS, and how they've expanded their footprint over the course of the last number of years, more recently, with the acquisition of a company called signifie, which we we sold to them with homebase value based care type type technologies and platforms. But you also think about big tech, you think about, obviously, some of those how those players are starting to move into healthcare in a big way, especially in the data world. And I think, you know, traditionally those all would have been what I would call wildcard bets. In terms of the types of acquirers you'd expect But I think, you know, in most instances, that's probably still the appropriate categorization of those types of companies. But it's becoming much more the focus, I think in in today's conversations. And, and then finally, I'd say there there, there are a number of consumer companies as well, that are actually looking very seriously at healthcare as a growth vector, and thinking about how to expand their own footprint in digital health. And the one thing when when we've kind of looked across the sector's we've interviewed, you know, CEOs, CFOs, you know, what, what is driving your strategy in m&a, especially if you're moving into healthcare technology, it really is around growth. And what I mean by that is, if you look at med tech, specifically, this is true for some other sectors as well. But, you know, one of the one of the most enduring patterns that we've seen, certainly in med tech for many, many years, is that the strongest single predictor of valuations, whether it's for private companies, or for public companies, is expected growth. And that relationship actually remains true even in the current environment where there's more focus on margin, but the importance of growth is still incredibly important. And so I think whether it's folks looking at at digital health, I think what they do, whether it's med tech, looking at digital health, of course, the strategic logic needs to be there. But I think the financial logic is first and foremost, you know, focused around growth and economics.

John Babitt  36:37  

Yeah, it's interesting, we're not only getting more med tech companies in med tech, with the spins with three M and GE Healthcare, and the list goes on, but we're also getting new entrants, which certainly going to put a competitive spirit on the m&a process. So it's good to be a banker, I guess, these days. Hi. The, you know, it's interesting. One topic I wanted to canvass as we wrap up here is is China and, you know, in the fall, I ran a similar panel, and nobody on m&a And nobody wanted to talk about China. But you guys were all relatively interested in it. So. So we'll chat a little bit, because I think, you know, from an m&a perspective, you know, we saw Boston did a deal in December for a public company, there's been a lot of overtures about, you know, the volume base procurement, and what does that mean, for long term, China's strategy, and John May maybe start us out, because, you know, whenever we do, like, an m&a process of a emerging startup, and they have a China, you know, partnership, it's kind of a, you know, man, we need to diligence that, okay. And so maybe tell us about, you know, what you guys did and how you kind of thought strategically about, you know, an important market like that.

John Kilcoyne  37:57  

So in a Serie C, we did have a component of the round. The Chinese company patient medical participated in, it was a licensing deal that we executed with Asia, along the lines of turning over every rock to extend runway in the capital. We looked at the Chinese market, and the China market for aortic regurgitation particularly is as large as the as as so is extremely prevalent in China, the opportunity for penetration of that market is is virginal, there's really nobody there. And there's a huge upside opportunity. But the reality of the company like NFL moving into the Chinese market by ourselves in the next three to five years, even seven to 10 years. It is rather challenging to to, you know, to contemplate with all that we have to do the United States, all that we have to do in Europe, in the current environment that were exist that we're operating in. So we did have the opportunity to engage a company, as I said, patient medical. At the same time AR is in its early stages of development therapy awareness around the globe. pager was very committed to therapy awareness development, in it provided us name brand recognition in the Asian continent, peer reviewed podium, etc. So it really extends the A our message to Asia, complementing our efforts in the United States. And in Europe, at the same time, it was a non dilutive component of the financing, which is, as you know, the investors in the room music to the investors here is that, you know, a large chunk of capital moving into the company in a non dilutive fashion, there was an equity component with it as well. So we doubled down with with China, it was an opportunity for us to leverage and worked out quite well. They're great. They're great partners. You never know what you're getting yourself into when you do any transaction that we've been very pleased with the relationship with pager.

John Babitt  39:59  

Yeah, it'll be interesting. You see, I mean, there's been a lot of papers written and a lot of research around is the juice worth the squeeze for some of the larger guys. We've seen some of the prices rebound after you know, the VVP has went into place. So I think you'll see really a real mix of strategies there. m&a will be one of the Levers, I think, continue to be pulled and be interesting for everyone. Well, with that, I think we are slightly over time, but we're so we're going to put a pin in it. But thank you, the audience and thank you to the panel for all your contributions as always great to be here. Thanks.