HealthpointCapital takes majority stake in CrossRoads Extremity Systems
The New York City-based private equity firm, which specializes in musculoskeletal plays, aims to fuel rapid growth via market expansion and bolt-on acquisitions, Memphis-based CrossRoads said.
The company makes a line of foot and ankle repair devices that use its “Active Stabilization” technology. The EcoSmart gamma-sterilized reusable instruments offering includes post-surgery recovery and processing services, CrossRoads said. The company launched its DynaForce Active Stabilization MPJ foot implant a year ago after winning 510(k) clearance from the FDA.
“HealthpointCapital is an ideal partner for us given their expertise and focus in the musculoskeletal space,” co-founder & CEO Vernon Hartdegen said in prepared remarks. “Our partnership strengthens our mission to be the leading innovator in the extremity foot & ankle space.”
“CrossRoads’ unique product platform, particularly its Active Stabilization technology and EcoSmart service, made them an attractive investment in the extremity sector, which continues to be one of the most rapidly growing segments of the musculoskeletal market,” added HealthpointCapital president & managing director Mike Mogul. “With our deep understanding of this space, CrossRoads’ exclusive technology made them a logical addition to our portfolio of rapidly growing companies.”
“CrossRoads’ investors are excited about this new relationship with HealthpointCapital and what it means for the future of CrossRoads. We remain holders with a substantial stake in the company’s future,” MB Venture Partners co-founder & managing partner Gary Stevenson said. “Since our initial investment four and a half years ago, management has been excellent stewards of investors’ capital creating the value that led to this transaction. We have every reason to believe they will continue to do so going forward.”
MB Venture was the lead institutional investor before the HealthpointCapital deal and, along with the management team, is still a significant backer, CrossRoads said.
Mintz, Levin, Cohn, Ferris, Glovsky & Popeo was legal advisor to HealthpointCapital; Waller, Lansden, Dortch, & Davis advised CrossRoads.
HealthpointCapital raised $100 million last October for its Musculoskeletal Fund IV healthcare fund for investments in the orthopedics, spine, dental, maxillofacial, rehabilitation and digital health sectors. The fund has a target size of $500 million, and aims to invest in eight to ten growth-stage companies. The PE firm has some skin in companies including Blue Belt Technologies, which was acquired by Smith & Nephew (NYSE:SNN) , and BioHorizons, which was acquired by Henry Schein (NSDQ:HSIC).
From the HealthPointCapital newsletter:
|First Acquisition in Fund IV: CrossRoads Extremity Systems|
Fast Growing Market SegmentFoot & Ankle is $2 Billion global market with 8% annual growth – 2x the orthopedics industryGrowth driven by unmet needs, complex anatomy, demographics, and innovationUnique customer dynamics – 7,500 podiatrists and 2,200 surgeon specialistCore StrategyBuild an attractive, scaled asset that would be a growth-accretive acquisition for strategic acquirersStrategics have limited and/or aging Foot & Ankle portfolios and are very acquisitiveDrive premium exit valuation by growth and commercial expansionHighly Differentiated Company with Unique OfferingsFast-growing pure-play company with procedure-specific, sterile-packed Foot & Ankle implants and instrumentsOnly company offering Active Stabilization technology: combining both compression and stability through nitinol clip within a plateReusable instrumentation reprocessed through unique EcoSMART program, improving gross margins and inventory managementStrong and innovative management team, highly respected by surgeons and distributorsPromising pipeline of additional minimally invasive productsOptimized TransactionHPC IV acquired -60% ownership stake and will invest additional capital to underwrite growth and continued innovationMajority of capital deployed over time, enabling favorable LP returnsFive months of in-depth due diligence and negotiationInvestment to sustain 35-40% growth rates and attractive 80% gross margin, with additional upsideStable product ASP, with increasing revenue per procedureExit PlanWell defined plan to grow the business 3x by 2022 and pursue an exitSeveral identified potential bolt-on acquisitions
|High-Growth Medtech M&A:|
Attractive Strategic Exits
|In light of our Fund IV acquisition of CrossRoads Extremity Systems, we wanted to share the strength of demand and premium prices being paid by some of the strategic buyers who are potential exit targetsMeaningful presence of extremities transactions|
|YTD Musculoskeletal Sector M&A:|
Focus on Extremities and Digital Technologies
|The pace of M&A in musculoskeletal continued unabated in 2019 YTD, particularly around AAOS in mid-MarchTuck-in acquisitions continue to be the strategics’ preferred way of deploying M&A capitalThe sector’s notable transactions are heavily centered on the extremities segment, as well as complementary, advanced digital solutions enabling musculoskeletal surgery – planning software, soft tissue balancing, navigation and roboticsThese are areas of significant focus for our Fund IV as well|