The orthopedic market environment has flipped because of the macro financial market changes in play that started in May 2022.
Earlier, I wrote about the leverage problem that many orthos struggle with. Now it’s going to hurt.
My opinion is that the Bioventus revision of the CartiHeal acquisition was the “canary in the coal mine” for orthos.
The Take Home Message: Investors and acquirers have a lower tolerance for risk now.
This is the start of de-leveraging for most orthopedic device companies. The easy money is gone. New debt is more expensive. The IPO market is closing. “Up” financing rounds are rare. VC returns are down. Labor is becoming more expensive. Wall Street is punishing the stock price of any unprofitable ortho – ATEC, SIBN, SRGA, SPNE, CFMS, NUVA.
No longer can unprofitable public companies tap into their stock for easy capital.
6 Predictions for the next four quarters
1/M&A deals will slow down and/or become “risk off”.
2/Deal multiples will be lower.
3/Stock prices of unprofitable ortho companies be suppressed.
4/The IPO market will be closed for some time.
5/For many orthos, there will be a hunt for working capital and a renewed focus towards profitability.
6/The public ortho companies will have to lay off staff to protect earnings.
Advice
1/Companies near profitability, should find a way to reach “break even” now!
2/Companies should find ways to squeeze out more sales with less expenses. Operating leverage will be key.
3/Companies that currently have an open fund raising round should keep it open as long as possible.
4/Companies that are flush with cash should become aggressive with M&A because there will be many great distressed technologies and/or startups at garage sale prices. Bargains will be found everywhere through late 2023.
What do you think?
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