How do you determine an acquisition target’s full potential?
- Posted by Abby Wilms
- On June 14, 2022
Acquisitions are commonplace in today’s medical device market and can add significant value to a company. The decision to make an acquisition is complex and multi-faceted, not just about the financials. Particularly when a new technology is involved, the technical evaluation of products can be a key part of any due diligence effort. At Engenious, we have supported technical due diligence efforts for several medical device technologies and learned a few lessons along the way.
The process of due diligence involves evaluating a potential asset before an acquisition or funding agreement. Technical due diligence focuses on the core technical holdings of a potential target company or product line. The goal is to gain an in-depth understanding of the core product technology while assessing any risk that may be uncovered. You wouldn’t buy a house without an inspection, and likewise, you shouldn’t invest in new technology without a thorough investigation of the technology’s soundness. Technical due diligence for medical devices often includes:
- Evaluation of product portfolio
- Understanding of product/technology pipelines
- Testing of core product technology
- Assessment of medical device design history files
- Identifying manufacturing constraints and scalability
- Understand regulatory constraints and risks
At Engenious, we have supported technical due diligence efforts for several medical device technologies and learned a few lessons along the way:
Nothing beats clinical experience
For medical devices, getting clinical feedback is key to any product design and is instrumental in understanding the benefits of a new product. Especially for products with limited market penetration and seemingly high potential, getting in front of product customers can help you gain key insights such as potential usability concerns, reliability issues, or equipment servicing needs. Most clinicians have a way of giving you the brutal truth and are a crucial resource during due diligence.
For this reason, we have a network of clinicians available to provide that insight quickly, and from a variety of institutions and professional backgrounds. Our clinicians have helped us uncover problems and opportunities with potential acquisitions.
De-Risk Key Technical Questions
One of the largest concerns when investigating a new technology is: Does it really work?
Due diligence is the key time to assess a product for any latent technical issues or potential reliability problems. Especially for products with limited clinical data, getting to the bottom of technology can include detailed technical reviews, assessment of any reliability testing, or complaint analysis.
Engineering analysis is an important part of derisking technical aspects of an acquisition, but the analysis is most powerful when combined with testing. This is why we make it a point to test the technical performance of product samples or engineering prototypes, especially testing around key operating parameters.
Manufacturing Sustainability and Scalability
With recent world events, many industries are reeling from chip shortages and there is no end in sight. Now more than ever, understanding the sustainability of product designs is at the forefront for many R&D and business leaders. A key part of due diligence can be identifying any part of obsolescence and planning for design changes to address. Similarly, dual sourcing can be a key strategy for mitigating supply chain constraints. Assessing this information during a diligence phase, can identify potential risks, influence negotiation strategies, and give a head start on planning.
An assessment starts with bills of materials and quickly gets into the use of tools such as SiliconExpert and detailed queries with manufacturers and suppliers to assess supply chain risks.
Plan for Remediation / Post-Acquisition
When making the decision to acquire new technology, having a clear picture of what needs to happen after the acquisition is a key activity to be done during due diligence. Understanding the work remaining to bring products in the pipeline to market or identifying a re-design effort due to part shortages should be identified. It’s also important to identify who will be responsible for those activities, does it stay with the original technology owners, or is it necessary to bring the historical product knowledge to an internal team? Having a plan will ease the transition post-acquisition and reduce surprises. And understanding the scope of remediation can be a negotiating lever for the acquirer.
Technical due diligence will continue to be an important part of the medical device industry as mergers & acquisitions are commonplace. Having the right plan of action going into a diligence evaluation and working to de-risk new technology is key to successful diligence and paving the way to long-term success.