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BCG Hard Deal Structure M&A Partnership Strategy

Medical Devices Co

#Medical Devices #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 15 minutes
Difficulty Hard
Source Wharton
50 / 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.