Dive Brief:

• RTI Surgical Holdings is set to sell its OEM business to Montagu Private Equity, the spinal device company said Monday. 

• Montagu, a European private equity group, is set to pay $490 million to buy the unit, which designs, develops and manufactures biologic, metal and synthetic implants for other medical technology companies.

• The divestiture will turn RTI into a pure play spine company with up to $200 million in cash to support its aspiration to achieve double-digit growth.

Dive Insight:

The OEM unit has been a highlight of RTI’s recent financial results. In November, growth at the unit offset the underperformance of RTI’s spine business. Three months earlier, the OEM business had its best ever quarter. The results, which followed a two-year transformation effort, added to evidence that the OEM unit is a predictable performer and generator of cash.  

Montagu, not RTI, will benefit from those characteristics going forward. RTI is set to sell the unit to the private equity group in the first half of the year for $480 million in cash, plus other considerations that bring the total transaction value up to $490 million.

The sale will leave RTI focused on its spine business. Over the first nine months of the year, the OEM unit brought in revenues of almost $94 million, one-third more than the sales generated by the spine business. However, it is the spine business that is growing fastest, with its sales increasing 19% year on year, compared to a sub-3% uptick at the OEM unit. 

Shorn of the OEM unit, management estimates RTI can achieve double-digit growth. That forecast rests on a belief that the combination of up to $200 million in cash and a pipeline that could support 20 product introductions over the next two years will drive growth.

A different future awaits the OEM unit. Montagu has supported a handful of management buyouts of medtech companies over the past 15 years, giving it a stake in businesses including former Smith & Nephew venture BSN medical, ophthalmic surgery​ equipment and instrument provider D.O.R.C., and IVD instrument and reagent manufacturer Sebia. 

In the 2018 to 2019 fiscal year, one-third of the top 12 medtech deals tracked by EY involved a private equity group. Those deals led private equity groups to account for a growing portion of the value of all medtech acquisitions. 

Evidence of the attractiveness of medtech to private equity has continued to accrue after the end of the period covered by the EY data. Late last year, Baring Private Equity Asia struck a $1 billion deal to buy Lumenis and Clayton, Dubilier & Rice acquired Hologic’s struggling medical aesthetics business.