Article - August 2, 2023
Medical Device Contract Manufacturing: GGI Showcases the Subsector’s Investment Opportunities
Medical device contract manufacturing is an attractive, resilient, and high-growth subsector supported by long-term tailwinds that are driving sustainable growth. The recent acquisition of Greene Group Industries (GGI) by Tinicum exemplifies this investment opportunity. GGI manufactures precision components for OEMs, with a particular focus on the medical end market, including the growing market for robotic-assisted and minimally invasive surgeries.
Here, Harris Williams senior bankers from the Healthcare & Life Sciences Group discuss why the medical device contract manufacturing subsector is so attractive, what makes GGI an exemplar, and key investor considerations.
Key Takeaways
Fast-growing medical device segments such as robotic-assisted surgery and minimally invasive surgery are driving sustainable demand for contract manufacturers that can produce complex, high-precision medical device components and instruments.
Greene Group Industries is an example of a premier precision manufacturing platform providing unique capabilities and end-to-end services to medical device OEM customers.
End market mix, proprietary capabilities, and breadth of service offerings are among the top differentiators in the medical device contract manufacturing subsector.
Strong Ongoing Growth
Source: HW market research
Sources: iData Research, Grand View Research, AliraHealth
GGI: Building a Highly Differentiated and Scalable Position
Greene Group Industries (GGI) is a premier precision manufacturing platform providing end-to-end solutions for highly complex components. The company stands out as a leader across many dimensions.
First, GGI is focused on highly attractive end markets. Many of its customers are in the fast-growing RAS or minimally invasive surgery end markets. “Minimally invasive surgeries are known to reduce hospital stays and total system costs, and often result in better health outcomes,” says Whit Knier, a managing director in the Healthcare & Life Sciences Group. “As the market for these types of surgeries grows, it drives increasing demand for complex components and instruments produced by companies such as GGI.”
GGI’s specialization in the manufacturing of complex, high-precision components is another key differentiator. Such components require very tight tolerances to specification, making them difficult to manufacture. Taylor Will, a director in the Healthcare & Life Sciences Group, notes that GGI’s specialization in producing complex components and instruments is highly valued by OEMs and helps foster strong customer relationships.
To achieve such precise manufacturing, GGI has made significant, purposeful investments in manufacturing equipment, processes, and systems. In particular, the company is an industry leader in metal injection molding (MIM). “This expertise allows GGI to produce complex components at high volumes while significantly improving efficiency and reducing cost for its OEM customers,” highlights Will.
Finally, GGI’s end-to-end solutions allow the company to act as a full-service partner to its customers, from design for manufacturing and prototyping through high-volume production. “This end-to-end approach has fostered deeply entrenched relationships with customers,” notes Knier. “GGI’s early focus on design for manufacturing provides significant value for its OEM customers, which supports long-term manufacturing relationships.”
Alexis Willingham, CEO of GGI, explains how the company evolved its wide-ranging service offering over time: “Decades ago, being a contract manufacturer meant simply taking a customer’s print or product model, providing them a quote, and making the part,” she says. “We realized our customers needed more support on the front end, and GGI could get them to the finish line faster with those services. To do so, we invested heavily in our engineering departments and software to design parts for manufacturability while providing a range of different iterations using our machining and prototyping capabilities.”
She adds that offering choice is key: “Providing a variety of prototypes and services allows our customers to stick with us through the entire manufacturing process, rather than jumping from a design house to a prototyping firm to a company with metal injection molding or stamping.”
“After establishing our expanded front-end services, we quickly rounded out our offering by supporting back-end processes as well, such as overmolding, laser marking, and assembly,” she continues. “Our strategy is actually quite simple: The more differentiated services we can offer to our customers in a competitive industry, the more value we can bring.”
Investor Considerations From End Markets to Capabilities to Customers
As GGI exemplifies, the medical device contract manufacturer’s end market mix is an important consideration. According to Tyler Bradshaw, a director in the Healthcare & Life Sciences Group, companies with more exposure to higher-growth medical end markets such as RAS are viewed more favorably compared to businesses with meaningful non-medical end-market exposure. “Companies with a medical revenue mix above 70% are typically considered medically focused platforms,” he adds.
Bradshaw notes that platforms with unique capabilities or proprietary manufacturing expertise such as GGI are more attractive since this differentiation creates an intellectual property moat from competitors. Companies manufacturing single-use products or components are also typically viewed as more attractive for their growth potential.
While some form of customer concentration is common within contract manufacturing, it is an important consideration. A look at historical customer relationships, contract lengths, and depth and breadth of services per customer can help assess true customer concentration risk. When considering customer concentration and relationship breadth, it is important to note that OEMs are becoming increasingly attracted to “one-stop shop” outsourcing partners that can provide a full suite of services. The more services CMOs can offer an OEM, such as prototyping, tooling, sub-assembly, assembly, or supply chain logistics, the greater value they bring and the stickier the relationship.
Long-Term Appeal
The aging population paired with both medical and technological advances such as RAS bode well for the market for medical devices and the components and instruments they comprise. For these reasons, medical device contract manufacturing continues to be an attractive industry for M&A investors seeking sustained growth for the foreseeable future.
To learn more, contact our senior professionals.
Harris Williams market research
iData Research, Grand View Research, AliraHealth
Contacts
Tyler Bradshaw
Managing Director
Stephan Döring
Director
Andrey Dvorkin
Director
Taylor Will
Director