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BCG Hard Deal Structure Merger & Acquisition Partnership Strategy

Medical Devices Co

#Healthcare
ProHub Comment

This case tests deal structure analysis and margin economics. The candidate must recognize that Medical Device Co.'s attempt to maintain its $80 margin creates an unfavorable cost structure for Spongy's ($19 margin), making the partnership untenable. The key insight is that vertical integration or acquisition may be more strategic than a simple distribution partnership.

Estimated Time 37 minutes
Difficulty Hard
Source Wharton
38 / 100
Our client, Medical Devices Co., is a medical device company that manufactures a blood clotting product called BloodStopper. This product is currently sold in liquid vials. The product is typically applied with a sponge during post-op. Medical Devices is considering a deal with a sponge manufacturer named Spongy’s to create a hybrid product that combines a sponge with the BloodStopper product. The combined product will include BloodStopper in a dry, tablet form. Spongy’s will sell the final product. Should Medical Devices do a deal with Spongy’s? If so, what terms should they negotiate?

Clarifying Information

  1. If Spongy’s sells the final product, does Medical Devices sell the tablet to Spongy’s? Yes, the proposed plan is for Medical Devices to sell the tablet to Spongy’s. Then Spongy’s will take care of marketing and customer relationships.
  2. Are there any financial or operational targets for the deal? No. Medical Device Co. would like to determine the best course to maintain or improve profitability.
  3. Are there any other uses for BloodStopper? None that we know of right now.
Mock Interview
Interviewer

Our client, Medical Devices Co., is a medical device company that manufactures a blood clotting product called BloodStopper. This product is currently sold in liquid vials. The product is typically applied with a sponge during post-op. Medical Devices is considering a deal with a sponge manufacturer named Spongy's to create a hybrid product that combines a sponge with the BloodStopper product. The combined product will include BloodStopper in a dry, tablet form. Spongy's will sell the final product. Should Medical Devices do a deal with Spongy's? If so, what terms should they negotiate?

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
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Medical Devices Co. is evaluating a partnership with Spongy’s to create a combined blood clotting product-sponge hybrid. The analysis reveals that if Medical Devices maintains its historical $80 margin, Spongy’s would earn only $19 per unit—insufficient motivation. The recommendation concludes the deal is unfavorable as proposed and suggests vertical integration instead.

Key Insights:

  1. Margin analysis is critical: Medical Device Co. $80 margin (original) vs. Spongy’s $19 margin (combined product) reveals asymmetric value capture
  2. Pricing power correlates with IP ownership and product differentiation: Medical Device Co. owns BloodStopper IP while sponges are commoditized
  3. Alternative deal structures (vertical integration, acquisition) may better serve both parties’ strategic interests than a simple distribution arrangement
  4. The case emphasizes the importance of negotiating terms that create mutual benefit rather than forcing one party to subsidize the other’s profitability