Two weeks ago a new orthopedic supplier called Orchid Orthopedic Solutions, LLC was unveiled by its private equity backer Churchill Equity Partners. This is not necessarily a start-up. In fact, Orchid is what an investment industry professional might call a "poof" rollup. A "poof" roll-up is created when you take a certain amount of capital (in this case about $48 million), buy up a bunch of companies in disparate locations all at once and, integration-be-damned, you have a whole new uber-company.
The ingredients in Orchid, in addition to Churchill's $48 million, consists of a group of medical device contract manufacturers that focus mainly on orthopedics, particularly the hip and knee segment. The Orchid umbrella includes Stealth Medical Technologies, a Michigan-based exotic alloys manufacturer; Unique Instruments, Inc., an instrument manufacturer; and BioCoat, Inc., a Pennsylvania based coatings manufacturer.
In essence, this is a low margin OEM supplier play that is fundamentally different from a Stryker or Zimmer type strategy which focuses on high margin surgical implants and technologies that are sold direct to surgeons. We bet that that Churchill will get a market or above-market return out of this in the same way Olympus Growth Fund III and Windjammer most likely got a decent return from investing in Symmetry - a similar cluster of orthopedic OEM suppliers that went public last fall. We do think that exit strategies with this type of play are limited. For example, if the IPO market dries up, Churchill may be riding this deal for years.
We note that numerous orthopedic suppliers will be exhibiting at the OMTEC supplier conference in Rosemont, IL coming up in three weeks to keep abreast of companies that supply the industry. See you at the conference!
