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Medical-focused Contract Manufacturer Develops a Focused Growth Strategy to Win in a Challenging Environment

Background and Challenge

The medical contract manufacturing market has been growing rapidly, driven by underlying growth in medical devices and increasing propensity among OEMs to outsource to contract manufacturing organizations (CMOs). These market conditions have led to increased competition, thereby driving the need for CMOs to clearly define a compelling value proposition and differentiate. Meanwhile, OEMs have been re-assessing their suppliers and increasingly looking for partners with broader and deeper capabilities, which has contributed to continued consolidation among CMO suppliers.

Faced with this challenging environment, a mid-sized, diversified CMO engaged L.E.K. to help develop a practical growth strategy to meet its goals. We collaboratively worked with the management team to develop a focused growth strategy and then assisted in activating the strategy, including support in completing and integrating a major acquisition.

Approach and Recommendations

Our client looked to us for help in developing focused strategy that identified and prioritized optimal growth opportunities. To develop an ambitious yet pragmatic growth strategy, we worked closely with our client in a thorough process that included:

  • Facilitating several workshops to clarify the organization’s current strengths and weaknesses, identify potential growth opportunities, and better understand the executive team’s vision and goals
  • Leveraging external market research, L.E.K. intellectual capital, and our vast network of industry participants and market experts to fill in key knowledge gaps
  • Complementing this enhanced knowledge base with robust analysis to help answer critical questions regarding the attractiveness of different markets, technologies, and/or customer segments, and build confidence and consensus among the management team and the Board of Directors
  • Synthesizing this information, quantifying the financial impact and developing an operational plan to support each of the recommended strategic initiatives

Our research and analysis resulted in a recommendation for the client to significantly increase their focus on two large and attractive medical market segments, where their value proposition was strongest. To “win” in these targeted segments, we recommended steps to strengthen a more differentiated and full solution across the production value-chain (from pre-production through final assembly) to better align with medical OEMs customers’ needs. Within each of the prioritized market segments, we also listed and prioritized specific OEM customers and prospective customers the client should target, as well as variation in needs/messaging for different types of customers. In addition, we identified other capability gaps to fill and recommended organizational changes to the sales and marketing team to better serve targeted customers.  

To complement this organic growth approach, we also recommended a strategic investment in a leading European player, both to expand the company’s core capabilities into a targeted market segment as well as to enable strategic growth and proximity to targeted customers in the European market. We then confirmed the attractiveness of the acquisition after conducting the commercial due diligence of target, including an in-depth assessment of growth prospects and expected synergies. Finally, we helped with integrating the major acquisition and updating the five-year plan accordingly.

Results

This project provided an actionable strategic plan that resulted in significant growth and value creation for our client. The plan, which included a mix of organic and M&A-based growth, transformed the company, more than tripling its market value and leading to a sustainable acceleration of long-term growth. Key results:

  • Accelerated growth trajectory: The combination of these organic and M&A-based growth strategies resulted in the client doubling its revenue, building a strong European presence, and realizing tens of millions of dollars in incremental cash flow from both synergies and new profit streams
     
  • Improved focus and alignment around profitable growth: Focusing the client on a handful of large and attractive market segments and high-value customers helped to substantially improve organizational alignment as well as profit margins. In addition, by repositioning the offering as a full-service solution, restructuring the organization and expanding technology capabilities to align with the new areas of focus, the client has been able to grow existing customers and win new customers more efficiently and cost-effectively.
     
  • Tangible impact on shareholder value: Since the beginning of our initial engagement with this client, it has more than tripled its shareholder value, an increase of more than $400 million (more than 250 times L.E.K.’s total project fees).  In addition, the strategy has accelerated growth projections going forward and positioned the company as a leading medical-focused CMO, enabling the company and its shareholders to continue to see strong value appreciation.