The medtech ‘new normal’

Our conversations with a number of operating companies and private equity groups suggested that medtech businesses seem to have overcome Covid-19 related disruptions, both on the demand and cost sides of P&L. Overall, medtech has successfully adapted to a ‘new normal’ operating environment, which, combined with impressive revenue growth (see Fig 1 below), has reinforced investment interest and robust valuations.

Fig. 1: Medtech revenue growth ($1B)

Company Filings; With respect to 2022 Revenue Growth Estimates: Copyright © 2023, S&P Global Market Intelligence (and its affiliates, as applicable)

Interestingly, while 2022 growth rates came down from 2021 levels, virtually every major sector within medtech posted above-average growth rates (see Fig 2 below), pointing to continued post-Covid 19 recovery. Specifically:

  • The respiratory sector performed the best during the Covid-19 pandemic as demand for related products, such as ventilators, increased dramatically
  • Dental companies were hit the hardest during the pandemic due to perceived infection risk and the elective nature of the services but had a robust recovery in 2021 and stabilized / modestly declined due to labor shortages at dental practitioners
  • Other sectors with exposure to elective procedures posted dismal in Q2 2020 but were able to recoup most of the losses in H2 2020, and continued recovery in 2021/22
  • Diagnostics remained a high growth sector in 2022 with companies such as Lantheus and Viewray posting breakout performances [2]

Fig.2: Medtech performance by therapeutic area 

Company Filings; With respect to 2022 Revenue Growth Estimates: Copyright © 2023, S&P Global Market Intelligence (and its affiliates, as applicable)

On the cost side, supply chain issues that businesses experienced during 2020 through to 2021 appear to be resolving. In addition, raw material pricing has come down from the pandemic induced highs (see Fig 3). However, labor shortages still pose challenges as unemployment remains historically low compared to previous years, putting pressure on profitability and consequently valuation.

Fig. 3: Sector cost drivers

Source: and FRED Economic Data as of January 19, 2023

We do want to raise a red flag around progressively increasing inventory with medical device companies as shown in Fig 4 below.  While the pandemic required OEMs to build up inventory to mitigate any supplier related disruption, we anticipate that over time the OEMs will revert to longer-term historical averages and it may have a bearing on near-to-medium term product demand from suppliers putting pressure on top line growth for suppliers, which may in turn impact valuation.  

Fig. 4: Inventory change for medtech OEMs 


Source: Company Filings

Key M&A / investment trends to note:

Medtech CDMOs should remain at the top of mind for private equity and strategic acquirors as these companies have highly attractive organic growth and margin profile, very sticky customer base and limited-to-no clinical and regulatory risk.

  • Acquisition interest in medtech CDMO appears high, as evidenced by a large turnout of private equity and investment bankers at the conference
  • New platforms with private equity are likely to keep valuations robust in the near future, which we expect to benefit sellers
  • Key drivers of strategic consolidation include the pursuit of ‘one-stop-shop’, revenue diversification across customers, end-markets, product platforms and potential synergies

To discuss the outputs in more detail, or for more information on medical device contract manufacturing and development landscape, please contact Manish Gupta >

[1] MDDI, an industry organization, the event had record attendance this year with over 16,000 attendees from medical device sector and non-medical attendees at over 30,000.

[2] Company filings 

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