Velentium, a contract design manufacturing organization (CDMO) for medical devices, raised $15 million in debt from Trinity Capital, CEO Dan Purvis tells Axios exclusively.
Why it matters: Demand for cost-effective, specialized manufacturing capabilities for medical devices is growing as large strategics focus on their core competencies.
How it works: The CDMO works with both startups and large strategics on Class 2 and 3 medical devices, both of which tend to be higher-risk and complex to develop.
- Its particular focus is on active implantable and wearable devices, including partnering with Spark Therapeutics on a wearable neurostimulation device to treat opioid withdrawal.
- "In the next 12 to 24 months, you're going to see a company that is more and more aggressively into manufacturing of Class 3 implantables," Purvis says.
Between the lines: Regulatory complexity around Class 3 devices is a "large barrier to entry," says Trinity managing director Ryan Kaeding.
- "You can continue to grow these businesses through their existing ownership or other private equity ownership, but it also would be a great fit with a lot of strategics that can add this capability into their set of set offerings," says Kaeding.
Zoom in: Velentium is profitable and generating north of $25 million in annual revenue, Purvis says.
- Great Point Partners has held a minority stake since 2021.
What's next: "With a private equity partner in our cap table, we are, by definition, for sale," Purvis says, adding timing depends on "how aggressive the marketplace is."
The big picture: CDMO multiples have fluctuated following a major boom from 2017 to 2021, but average EBITDA and revenue multiples have stayed frothy, at 19.8x and 3.7x, respectively, from 2019 to 2023.
- That represents a 30% to 40% increase over the S&P 500 multiples during the same period, per Lincoln International.
- The medical device CDMO market landscape is primed for consolidation, "with most players in the space generating less than $100 million in annual revenue," according to an Edgemont Partners report.
State of play: CDMO deal activity has been led by both strategics and PE over the last year.
- In June, Ingersoll Rand closed its purchase of ILC Dover from New Mountain Capital for $2.33 billion in cash.
- In May, GTCR took Surmodics private for $627 million, or $43 per share.
- In March, Montagu Private Equity agreed to acquire Johnson Matthey's medical device component unit for $700 million.
