Set of medical iconsThe future looks bright for manufacturers in the medical instrument and supply (medical I&S) manufacturing sector. For the most part, manufacturers in the healthcare sector were able to weather the recession well and should see solid growth as the economy recovers. In fact, an IBISWorld report estimates revenues to rise 5.1 percent in 2014.

At the same time, middle-market business owners in the sector can’t expect to grow without responding strategically to new demands in today’s dynamic marketplace. Looking to outside resources for expertise and capital may help middle-market medical product manufacturers overcome challenges in the market and take advantage of the opportunities that lie ahead.

For some, a private equity investor can bring the industry insight, relationships and capital that middle-market business owners need to efficiently reach new heights in the medical I&S manufacturing niche. An investment banker with experience in the sector can help business owners weigh their options.

Medical I&S Manufacturing Opportunities Plentiful

Along with slow, steady economic growth, a number of other trends will help ensure continued opportunities for medical I&S manufacturers for years to come. Medical product manufacturers should prepare their operations to handle this ongoing growth. Here’s why:

  • The aging population is growing in leaps and bounds, and the demand for medical products and services will grow along with it. According to the U.S. Census Bureau, the 65+ population will nearly double by 2050 – from 43.1 million in 2012 to 83.7 million. The advancing age of baby boomers (born mid-1946 to mid-1964) is a key contributor.2
  • Rising rates of diabetes and obesity will propel demand for medical devices, instruments and supplies to support disease care.1
  • The home healthcare market will continue to grow as consumers look for cost-effective alternatives to institutional care at hospitals and other care facilities. Demand for products suitable for home use will coincide with this trend.1
  • Healthcare reform will provide millions of Americans with access to healthcare coverage, which will boost demand for medical services, products and supplies. An estimated 27 million previously uninsured consumers should be covered by 2017, according to the Congressional Budget Office.4
  • As consumer confidence grows, so will the number of elective surgeries. In April, overall consumer confidence declined slightly, but according to Lynn Franco, director of economic indicators at The Conference Board, “consumers do not foresee the economy, or the labor market, losing the momentum that has been building up the past several months.”3 With consumers willing to loosen their purse strings, consumer spending on elective surgeries and procedures will grow.

 Manufacturers Still Face Big Challenges, PE May be Able to Help

From the Affordable Care Act (ACA) excise tax to customer pressures for price concessions, medical I&S manufacturers still face a number of challenges they shouldn’t ignore. Seeking guidance and capital from a private equity investor may help middle-market CEOs position their companies for growth.

  • Increased opportunity reaps more competition at home and abroad. Look for continued advances in technology and new consumer-friendly products to hit the market. Medical I&S manufacturers need to be proactive about R&D and maintain a competitive edge if they hope to grow.
  • Government regulations – local, state, federal – seem to change daily. Investing in compliance expertise can help business owners avoid costly missteps.
  • The 2.3 percent excise tax imposed on domestic sales of medical devices under the ACA was levied Jan. 1, 2013.4 Tax increases will squeeze profits and manufacturers will need to improve efficiencies to stay competitive.
  • GPO’s (group purchasing organizations) price discounts will eat away at profits. A strategy to diversify the customer base and expand distribution channels, along with enhanced or new product offerings could help medical I&S manufacturers soar to new heights.
  • When companies expand, operations and processes need to adapt. Business owners should seek out insight from experts who know the ins and outs of growing a business, have industry connections and can bring key personnel to the table.

If you own a middle-market medical I&S manufacturing business, a private equity investor could help you take advantage of the opportunities in today’s market. Look for an investment banker who understands the medical manufacturing space to guide you.

Photo Source: © Raman Maisei – Fotolia.com

Resources:

1. “33911a – Medical Instrument and Supply Manufacturing in the US,” [report]. IBISWorld. January 2014.

2. “Fueled by Aging Baby Boomers, Nation’s Older Population to Nearly Double in the Next 20 Years, Census Bureau Reports,” [press release]. May 6, 2014. U.S. Department of Commerce,  United States Census Bureau.  Accessed May 8, 2014.

3. “The Conference Board Consumer Confidence Index® Falls Slightly in April.” Consumer Confidence Survey, April 29, 2014. The Conference Board. Available at https://www.conference-board.org/data/consumerconfidence.cfm. Accessed May 7, 2014.

4. Son A. “Manufacturers Brace for Impact of Healthcare Reform.” Industry Week website www.industryweek.com. April 2, 2014. Available at http://www.industryweek.com/corporate-finance-tax/manufacturers-brace-impact-healthcare-reform. Accessed May 6, 2014.