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Firm: Integer Holdings Corp (ITGR)
Enterprise: Integer Holdings Company is a medical system contract improvement and manufacturing firm. Its manufacturers embrace Greatbatch Medical and Lake Area Medical. The corporate’s Cardio & Vascular product line gives a spread of parts, subassemblies, and completed units utilized in interventional cardiology, structural coronary heart, coronary heart failure, peripheral vascular, neurovascular, interventional oncology, electrophysiology, vascular entry, infusion remedy, hemodialysis, urology and gastroenterology procedures. Its interventional cardiology portfolio is targeted totally on the design, improvement and manufacture of catheter and wire-based applied sciences meant to diagnose and deal with cardiac illness. Its electrophysiology merchandise embrace units utilized by electrophysiologists and interventional cardiologists for the remedy of cardiac arrythmias, similar to atrial fibrillation.
Inventory Market Worth: $3.01B ($85.78 per share)
Integer Holdings previously 12 months
Activist: Irenic Capital Administration
Possession: better than 3%
Common Value: n/a
Activist Commentary: Irenic Capital was based in October 2021 by Adam Katz, a former portfolio supervisor at Elliott Funding Administration, and Andy Dodge, a former funding companion at Indaba Capital Administration. Irenic invests in public firms and works collaboratively with agency management. The agency’s activism has to date primarily centered on strategic activism, recommending spinoffs and gross sales of companies.
What’s occurring
On Dec. 18, it was reported that Irenic took a place of greater than 3% in Integer Holdings and is asking for a board refreshment and the exploration of a possible sale of the corporate.
Behind the scenes
Integer Holdings is a medical system contract improvement and manufacturing group (“CDMO”). The corporate acts as an outsourced design and improvement companion for unique gear producers (“OEMs”), similar to Medtronic, Boston Scientific and Johnson & Johnson. When creating new medical units, OEMs usually outsource sure parts to 3rd events, who then turn into chargeable for these elements for the whole lifecycle of the product. Integer is the biggest of such firms and the one publicly traded pure-play medical system CDMO. From an finish market perspective, the corporate makes a speciality of cardiovascular and neuromodulation purposes, that are typically thought of to be very top quality due to their interventional, and subsequently extremely sticky nature. Furthermore, the stringent regulatory and FDA approval necessities for these markets create very excessive obstacles to alter. Nevertheless, regardless of this robust market place and aggressive moat, the corporate’s share value has struggled, down practically 40% previously yr.
The catalyst for this downturn was Integer’s most up-to-date quarterly report, which disclosed that the market demand for 3 particular merchandise fell in need of the OEM’s expectations, inflicting the OEMs to considerably cut back their orders from Integer. Consequently, Integer is now dealing with an air pocket in development from 2026. Whereas the corporate usually targets 6% to eight% natural development, 2026 is now projected to be between -2% and a pair of%. Regardless of administration’s assurances that that is simply an air pocket and that development will normalize in 2027, the inventory plummeted in prolonged buying and selling and within the days that adopted. A improvement like this adopted by the assurances of administration typically doesn’t end in a 40% decline in a inventory. The character of Integer’s enterprise brings alongside sure confidentiality constraints round essential data. So, whereas administration may give assurances, they can not give transparency into its pipeline or the identification of its prospects, applications and platforms.
On Dec. 18, it was reported that Irenic Capital had a place of greater than 3% in Integer and is asking for a board refreshment and to discover a possible sale of the corporate. There are a couple of explanation why a sale is sensible right here. First, as the one public pure-play medical system CDMO, Integer has no public comps and suffers from restricted investor and analyst understanding and protection. Second, as mentioned above when an organization is required to have opacity round its gross sales and prospects, it’s a lot simpler operated and grown in a non-public setting. Third, public traders have restricted data with which to investigate the corporate, the place a non-public purchaser topic to a confidentiality settlement would be capable of carry out diligence on Integer’s merchandise, contracts and pipeline in full element, permitting them to underwrite future development with better confidence. This isn’t misplaced on Integer administration. In 2024, they explored strategic options and reportedly obtained bids at a premium to the share value on the time (estimated within the $110 to $115 per share vary). Whereas the corporate finally did not pursue a transaction, because the inventory subsequently rerated, the current share value pullback suggests that non-public fairness curiosity ought to stay at a significant premium to right now’s valuation. For instance, Teleflex Medical lately introduced the sale of its OEM enterprise at roughly 4.7-times income and 16- to 17-times EBITDA. Integer’s largest rivals, Resonetics and Confluent Medical, are each PE owned and have been acquired at valuations exceeding 20-times EBITDA. Extrapolating these multiples to Integer, which at present trades at roughly 2-times income and 12-times EBITDA, would equate to an acquisition value north of $120 per share.
In evaluating this resolution, Irenic want to see a board refreshment that would come with administrators with medical OEM expertise and monetary acumen. This is able to add wanted expertise in two areas integral in making a transformative resolution like whether or not to promote or not. Even with no potential sale of the corporate, this can be a board that wants refreshment. Of the 11 administrators, 5 may have been on the board for not less than 10 years by the following annual assembly. This consists of the chair, Pamela Bailey, who has been on the board for practically 25 years. Introducing some recent views might materially enhance the board’s means to evaluate the potential choices to maximise worth for shareholders on a risk-adjusted foundation.
Irenic has important expertise in strategic activism, figuring out firms which can be struggling within the public markets and serving to implement spinoffs and gross sales of companies, usually to non-public fairness. Integer suits the agency’s playbook completely. Whereas we usually choose an activist to weigh a standalone thesis towards a sale path, it’s onerous to recall an organization with much less justification for remaining within the public market. With the nomination deadline opening Jan.21, Irenic’s subsequent steps – and whether or not the agency chooses to appoint administrators – ought to emerge quickly. Nevertheless, whereas Irenic is greater than able to working a proxy contest, it has traditionally obtained board illustration through settlements, and we’d anticipate the agency to be in search of the identical outcome right here. Furthermore, given Irenic’s strategically pushed strategy to its engagements, we might anticipate the agency to de-emphasize its governance considerations ought to the present board provoke a proper strategic evaluation and obtain credible and worth accretive gives.
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist investments.
