Capstone Headwaters MEDICAL DEVICE OUTSOURCING Q TABLE OF CONTENTS MERGER & ACQUISTION OVERVIEW CONTRIBUTORS

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1 Capstone Headwaters MEDICAL DEVICE OUTSOURCING Q TABLE OF CONTENTS M&A Overview Key Trends & Drivers CSHW Deal Highlight Notable Transactions Case Study Select Transactions Firm Track Record CONTRIBUTORS Eric Williams Managing Director Mark Surowiak Director MERGER & ACQUISTION OVERVIEW One of the hurdles consistently facing medical device original equipment manufacturers (OEMs) is the significant costs and length of time to design, develop, and secure regulatory clearance for a new product. According to ScienceDirect, a platform for peer-reviewed scholarly literature, the average time-to-market for a medical device falls between three to seven years at a cost of $94.0 million for a high-risk, novel medical device. 1 Consequently, medical device OEMs have turned to the MDO industry to support faster and more efficient design, development, testing, and regulatory processes. OEMs are more than ever realizing that implementing a strong regulatory and compliance strategy early in the development process is of paramount importance to accelerating time to market. Capstone Headwaters is also seeing this playout in merger and acquisition (M&A) activity with an uptick in regulatory related and testing/validation deals completed in Capstone Headwaters identified 37 announced or closed transactions in 2018, lagging the robust deal activity in Despite the downtick in transaction volume, quality companies continued to fetch attractive valuations. The median Enterprise Value to EBITDA multiple was 12.8x on reported transactions. Strategic buyers remain the most active players in the MDO M&A market, representing 59.5% of total deal volume. Buyer Breakdown: Medical Device Outsourcing STRATEGIC Public Private 27.0% 35.1% FINANCIAL Direct Add-on 13.5% 24.3% Source: Capital IQ, Pitchbook, FactSet, and Capstone Headwaters Research 3 December 2018

2 KEY TRENDS & DRIVERS 126.0% INCREASE IN MEDICAL DEVICE RECALLS IN Q1 In the first quarter of 2018, there was a 126.0% increase in medical device recalls with the highest quarterly total since 2005, according to Stericycle. 2 In addition to the detrimental impact on reputation and the additional costs associated with compliance and litigation, the market share impact and lost revenue and profits on halted device sales can rapidly reach disastrous levels. A 2017 McKinsey Report states that the cost of one major recall can cost as much as $600 million. 3 The flurry of recalls also coincided with a spike in regulatory consulting related deals occurring in One of the leading causes of medical device recalls is sterility issues. Medical device manufacturers are increasingly turning to the MDO market for sterility testing and validation solutions. Factors driving the adoption of outsourcing include the increasing complexity of testing, escalating difficulty of staying abreast of the ever changing labyrinth of standards, and mounting demand for independent verification. Benefits to outsourcing for manufacturers include: reduced capital outlays purchasing and upgrading test equipment; lower costs in-house labs generally feature lower utilization, less efficiency, and higher costs; and ability to secure faster testing turn-around times required under shortened product development cycles. FURTHER CONSOLIDATION AMONG OEMS The mammoth and ever increasing costs associated with developing and successfully launching a new medical device; the inherent advantages of scale as it relates to sales, marketing, and distribution functions; and the growing complexities of medical device technology and regulatory issues have supported consolidation among Medical Device OEMs. Over the last five years, there have been numerous multi-billion dollar deals in the space. Of the largest 30 medical device players, the top 10 largest companies now account for 62.8% of revenue versus 59.6% five years ago. 4 Date Target Acquirer Target Description EV 08/18 K2M Holdings 08/18 VENITI 07/18 06/17 Claret Medical Novadaq Technologies 04/17 C.R. Bard 02/17 04/16 Codman Neurosurgery St. Jude Medical 04/15 Cordis 10/14 CareFusion Medical Device OEM Transactions Stryker Boston Scientific Boston Scientific Stryker Becton, Dickinson Integra Lifesciences Abbott Laboratories Cardinal Health Becton, Dickinson Offers spine/minimally Invasive solutions. Offers products for the venous disease space. Develops cardiovascular medical devices. Produces fluorescence imaging products. Provides medical devices worldwide. Develops equipment for neurosurgery. Develops cardiovascular Medical devices. Manufactures medical devices. Offers medical systems and procedural services. $1,339.9 $196.0 $270.0 $644.5 $24,894.5 $1,000.0 $30,002.6 $1,944.0 $14,191.2 Source: CapIQ, Pitchbook, and Capstone Headwaters Research The increased concentration within the Medical Device OEM market has in turn fueled consolidation among its supplier base. Larger OEMs are requiring more comprehensive suite of capabilities including product concept and development, supply chain management, specialized manufacturing, and true turn key solutions. CAPSTONE HEADWATERS DEAL HIGHLIGHT In August 2018, Capstone Headwaters advised Gibraltar Laboratories on its sale to Sotera Health LLC, a portfolio company of Warburg Pincus and GTCR. Sotera Health is the world s leading, fully integrated protector of global health and operates 63 facilities in 13 countries. Sotera Health serves more than 5,000 customers worldwide, including 75 of the top 100 medical device manufacturers. Gibraltar is a premier provider of outsourced microbiology and analytical chemistry testing, protocol development, and sterility validation solutions serving the Medical Device and Pharmaceutical sectors. The acquisition is a highly strategic fit for Sotera Health, which owns Nelson Labs, a global medical device outsourcing provider focused on lab testing and expert advisory services. Gibraltar represented a highly sought after acquisition target based on its expertise in the fields of sterility, microbiology, molecular biology, and virology and proven ability to assist its clients in validating the safety, efficacy, and regulatory compliance of their products. Gibraltar will benefit from Nelson Labs and Sotera Health s international reach and business development resources. 2

3 NOTABLE TRANSACTIONS Several notable transactions have already been announced or completed in the industry in Select transactions are outlined below, followed by a more comprehensive list on the following pages. Cerberus Capital Management to acquire Sparton Corp. (December 2018, $255.3 Million) New York-based private equity firm Cerberus Capital Management has agreed to acquire Sparton Corporation (NYSE:SPA), a manufacturer of complex electromechanical devices for medical and biotech industries, for $255.3 million, equating to multiples of 9.1x EV/EBIDTA and 0.7x EV/Revenue. To acquire Founded more than 115 years ago in Michigan, Sparton operates eight medical design and manufacturing facilities across the US and Vietnam. With the capability to offer contract manufacturing services at any stage of the product s lifecyle, Sparton specializes in Class I, II, and III medical devices which require specialized technologies such as robotics and lasers, and blood separation. 5 With its industry-leading solutions and strong customer relationships, we believe there is significant opportunity to further expand the Company s leadership position in its markets, Cerberus Managing Director, Tarek Ajouz said in a press release. 6 We look forward to partnering with Sparton s talented employees to serve its customers with best-in-class solutions, build upon the foundation of excellent capabilities already in place, and help Sparton achieve its full potential for growth. Trelleborg agrees to acquire Sil-Pro LLC (August 2018, Undisclosed) Trelleborg (OM:TREL), through its precision seals and bearings manufacturing business Trelleborg Sealing Solutions (TSS), has agreed to acquire Sil-Pro LLC. Terms of the deal were not disclosed. Completion of the transaction is subject to regulatory approval and is slated to be finalized in Q To acquire Sil-Pro is a contract manufacturer of medical devices and components. With its 85,000 square foot manufacturing facility in Minnesota, the company will expand Trelleborg s presence in the US. This acquisition complements our existing offering and expands our product range in such areas as drug delivery and surgical tools," TSS President Peter Hahn said in the company press release. 7 The company is well-reputed with first-rate quality systems and clean room standards. Its expertise and capacity within tool making is a welcome addition to our current operation. MedPlast LLC acquires Advanced Surgical and Orthopedics business of Integer Holdings Corp. (May 2018, $600.0 million) Acquires MedPlast has acquired the Advanced Surgical and Orthopedics (AS&O) business of Integer (NYSE:ITGR) for $600.0 million, equating to 11.5x EBITDA. MedPlast, a provider of end-to-end solutions for medical device OEMs, will rebrand under the name Viant Medical to reflect its new strategic direction. The acquisition doubles MedPlast s size with sales expected to reach approximately $1.0 billion following the integration. Integer s AS&O business will also expand MedPlast s metals manufacturing capabilities, including machining, stamping, coating, and metal forming, as well as its front-end design, development, and prototyping services. This acquisition will further broaden our offerings and strengthen our ability to provide our customers with innovative solutions to meet their challenging needs. It also will provide additional scale and new growth opportunities for MedPlast. We are excited to be working with the AS&O team and look forward to collectively growing our company and continuing to deliver outstanding service to our customers, commented MedPlast s CEO, Brian King, in a press release. 8 3

4 SELECT TRANSACTIONS Enterprise EV / LTM Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA 12/20/18 Relius Medical Eptam Plastics Offers precision components to medical device OEMs. 12/12/18 Sparton Cerberus Capital Provides device services to three primary industries including medical and biotechnology. $ x 9.1x 11/21/18 Q International Courier Kuehne + Nagel Offers priority specialty logistics/transport solutions to various industries including medical device. 11/06/18 Red Star Contract Manufacturing Wishbone Medical Provides sterile packaging and plastic injection molded single use instruments for the pediatric ortho market. 10/31/18 Cactus Semiconductor Cirtec Medical Systems Designs and manufactures medical integrated, power management, and analog and mixed signal circuits. 10/31/18 Evergreen Medical Technologies Heraeus Holding Provides implantable medical device product development services. 10/29/18 Octane Biotech Lonza Group Develops and manufactures regenerative medicine solutions for medical device companies. 10/17/18 Clada Medical Devices Nordson Medical Provides contract manufacturing of medical devices and components. 10/16/18 FDA Agents Registrar Offers FDA registration consulting services for medical devices, drug facilities, and foods & beverages. 10/01/18 Assets of Pacific Maintenance C&W Facility Services Provides services for controlled environments such as medical device facilities. 09/07/18 Eagle Laboratories Innovia Medical A provider of ophthalmic products, including singleuse cannula, micro-surgical knives, and blades. 08/31/18 DZS Software Solutions WDB Medical Data Offers clinical development and data analytic services for pharma, biotech, and medical device companies. 08/21/18 Gener8 Sverica Capital Offers design and manufacturing services for medical product and high tech companies. 08/08/18 Gibraltar Laboratories Nelson Laboratories Provides outsourced solutions serving the pharmaceutical and medical device sectors. 08/06/18 Sil-Pro Trelleborg Sealing Manufactures molded medical components, assemblies, and devices. 07/30/18 Regulatory Professionals Premier Research Provides regulatory expertise and solutions to biotech, pharmaceutical, and medical device companies. 07/20/18 Medbio Graham Partners Offers contract manufacturing services for medical and biotech industries. 07/13/18 ReNu Medical Arjo Specializes in reprocessing and sterilizing single use non-invasive medical devices Source: Capital IQ, Pitchbook, FactSet, and Capstone Headwaters Research 4

5 SELECT TRANSACTIONS Enterprise EV / LTM Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA 06/27/18 Sequel Special Products Graphic Controls Offers product development and contract manufacturing services for surgical instruments. 06/21/18 Medelec Resonetics Produces high precision metal tubular profiles for medical use. 06/12/18 Clinical Device Group Factory-CRO Offers medical device consulting and contracting services. 06/11/18 MWC Technologies Zeus Industrial Products Manufactures medical device components. 06/06/18 Advanced Sterilization Fortive Provides medical device sterilization systems. $2, x 14.0x 05/25/18 Precision Medical Röchling Medical Rochester Engaged in the assembly, engineering, manufacturing, and contract packaging of OEM medical devices. 05/24/18 RS Calibration Trescal Provides calibration and validation services for pharma, medical device, and biotech production environments. 05/03/18 Assets of Integer MedPlast Offers advanced surgical and orthopedics products. $ x 11.5x 05/01/18 Hygia Health Stryker Sustainability Provides third party reprocessing services of single-use medical devices. 04/30/18 Assets of Catheter Research Biomerics; ATL Technology Manufactures interventional catheters, tube sets, and other assemblies for medical devices. 04/23/18 Lavezzi Precision MW Industries Offers precision machinery components and provides contract medical manufacturing services. 04/03/18 Paragon Medical NN A designer and manufacturer of cases and trays, surgical instruments, and implantable components. $ x 15.6x 02/22/18 Bridgemedica NN Designs, researches, develops, and engineers medical devices. 02/09/18 Elfy s Lee; Blackburn; Westfall Technik Provides front-end solutions for medical devices and components. 02/08/18 Corpus Medical Confluent Medical Technologies Offers contract manufacturing services for Class III medical devices. 02/02/18 Dielectrics UFP Technologies Designs medical device components and provides contract manufacturing services. $ x - 01/31/18 Spectrum Plastics Group AEA Investors Manufactures specialty medical plastic products for medical device manufacturers and end-users. 01/02/18 Veracity Medical Solutions Arcamed Provides contract manufacturing of surgical instrumentation and implants. Source: Capital IQ, Pitchbook, FactSet, and Capstone Headwaters Research 5

6 PUBLIC COMPANY TRADING & OPERATING DATA Price % 52 Wk Market Enterprise LTM EV / LTM Company 12/19/18 High Cap Value Revenue EBITDA Margin Revenue EBITDA Boston Scientific Corporation $ % $47,021.6 $53,479.6 $9,670.0 $2, % NM 20.6x CONMED Corporation $ % $1,711.1 $2,142.3 $839.7 $ % 2.6x 15.6x Integra LifeSciences Holdings $ % $3,966.8 $5,186.4 $1,457.7 $ % 3.6x 14.4x Medtronic plc $ % $122,566.3 $137,573.3 $30,378.0 $9, % 4.5x 14.2x NuVasive, Inc. $ % $2,665.2 $3,192.6 $1,087.4 $ % 2.9x 14.0x Stryker Corporation $ % $59,121.6 $64,114.6 $13,276.0 $3, % 4.8x 17.9x Teleflex Inc. $ % $11,272.1 $13,068.9 $2,401.9 $ % NM 19.7x Zimmer Biomet Holdings, Inc. $ % $21,327.8 $30,010.8 $7,951.0 $2, % 3.8x 11.4x EV = enterprise value; LTM = last twelve months $ in millions, except per share data NM = Not Meaningful Mean 26.1% 3.7x 16.0x Median 26.9% 3.7x 15.0x Harmonic Mean 24.9% 3.5x 16.2x Last Twelve Month Margin Performance 80% 70% 60% 50% 40% 30% 20% 10% 0% 71.3% 26.9% 54.8% 16.4% 65.1% 24.7% Boston Scientific CONMED Integra LifeSciences 70.7% 72.3% 66.2% 71.3% 58.2% 31.9% 26.9% 27.7% 33.0% 21.0% Medtronic NuVasive Stryker Teleflex Zimmer Biomet Gross Margin % EBITDA Margin % 40% 35% 30% 25% 20% 15% 10% 5% 0% 9.5% 7.9% Last Twelve Month 1-Year Revenue Growth 35.6% Boston Scientific CONMED Integra LifeSciences 2.5% 5.9% 9.4% 16.3% 2.6% Medtronic NuVasive Stryker Teleflex Zimmer Biomet Source: Capital IQ as of December 19,

7 FIRM TRACK RECORD has recapitalized with a portfolio company of AUDAX GROUP, INC. has divested assets to has secured financing from 7

8 CITATIONS 1. MedCity News, Medical device makers spend millions to meet FDA rules, study finds, /2010/11/medical-device-makers-spend-millions-to-meet-fda-rules-study-finds/, accessed January 14, Stericycle, Recall Index Q1 2018, accessed December 21, Mckinsey, The Business Case of Medical Device Quality, /client_service/public%20sector/regulatory%20excellence/the_business_case_for_medical_device_quality.ashx accessed December 21, Medical Product Outsourcing, The 2018 Top 30 Global Medical Device Companies, accessed January 14, Sparton, Complex Technologies, pdf, accessed December 21, Sparton, Sparton Corporation to Be Acquired by Cerberus, accessed December 21, Trelleborg, Trelleborg acquires manufacturer of silicone components for healthcare & medical industry, accessed December 21, Integer, Integer Announces Plans to Divest Advanced Surgical and Orthopedics Product Lines to MedPlast LLC for $600 Million, Plans-to-Divest-Advanced-Surgical-and-Orthopedics-Product-Lines-to-MedPlast-LLC-for-600-Million/default.aspx, accessed January 14, Disclosure: This report is a periodic compilation of certain economic and corporate information, as well as completed and announced merger and acquisition activity. Information contained in this report should not be construed as a recommendation to sell or buy any security. Any reference to or omission of any reference to any company in this report should not be construed as a recommendation to buy, sell or take any other action with respect to any security of any such company. We are not soliciting any action with respect to any security or company based on this report. The report is published solely for the general information of clients and friends of Capstone Headwaters. It does not take into account the particular investment objectives, financial situation or needs of individual recipients. Certain transactions, including those involving early-stage companies, give rise to substantial risk and are not suitable for all investors. This report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Prediction of future events is inherently subject to both known and unknown risks and other factors that may cause actual results to vary mate- rially. We are under no obligation to update the information contained in this report. Opinions expressed are our present opinions only and are subject to change without notice. Additional information is available upon request. The companies mentioned in this report may be clients of Capstone Headwaters. The decisions to include any company in this report is unrelated in all respects to any service that Capstone Headwaters may provide to such company. This report may not be copied or reproduced in any form, or redistributed without the prior written consent of Capstone Headwaters. The information contained herein should not be construed as legal advice. 8

9 MEDICAL DEVICE OUTSOURCING REPORT CONTRIBUTORS Eric Williams Managing Director Eric serves as Managing Director and Head of the Atlantic Region for Capstone Headwaters, based out of Philadelphia. Prior to Capstone, Eric was responsible for managing the Eastern region for Morgan Stanley Smith Barney s Capital Strategies Group and its predecessor, Citi Capital Strategies. Eric has more than 20 years of experience managing strategic sale assignments and leveraged recapitalizations for owners of privately held companies. He is head of Capstone s Health and Medical practice and has successfully completed over 100 transactions in a wide range of industries including medical device, contract manufacturing, pharmaceutical outsourcing, health care services and education and training. In 2016, he received the USA Deal of the Year at the M&A Atlas Awards for his work on the acquisition of Progressus Therapy, LLC and in 2014 was awarded both M&A North American Middle Market Deal of the Year at the M&A Atlas Awards and Cross Border Deal of the Year from the M&A Advisor for his work on the sale of T-DOC Company LLC. Eric has executed complex cross-border transactions with foreign buyers based in London, Germany, Sweden and Switzerland and has structured deals with leading private equity groups and strategic corporate buyers. He graduated cum laude from the University of California and is a Series 7 and 63 Registered Securities Representative as well as a Series 24 Registered Securities Principal. Mark Surowiak Director msurowiak@capstoneheadwaters.com Mark is a Director in the Philadelphia office, supporting the management of the Atlantic Region. Prior to Capstone Headwaters, Mark served over 10 years as a senior investment banking professional in Morgan Stanley Smith Barney s Capital Strategies Group. Over his career, Mark has focused on developing deep credentials and expertise in the sale and recapitalization of privately held businesses. Prior to investment banking, Mark enjoyed a career in the social services field. Mark is a graduate of Illinois State University with a BS in Business Administration. He is a Series 7 and 63 Registered Securities Representative TURNAROUND AWARDS INVESTMENT BANKING FIRM OF THE YEAR US MIDDLE MARKETS INVESTMENT BANK OF THE YEAR US - DEBT FINANCING ADVISORY OF THE YEAR MIDDLE MARKET INVESTMENT BANK OF THE YEAR 9

10 BUILT FOR THE MIDDLE MARKET UNITED STATES 160+ professionals 17 offices Boston Boise Burlington Chicago Dallas Denver Greenwich Houston Los Angeles New York Orange County Philadelphia San Diego San Francisco St Louis Tampa Washington DC INTERNATIONAL 300+ professionals 37 offices in 33 countries Argentina Belgium Brazil Canada Chile China Colombia Croatia Czech Republic Denmark Egypt Finland France Germany Hungary India Ireland Italy Japan Mexico Morocco Netherlands Norway Peru Poland Russia Spain Sweden Switzerland Turkey United Arab Emirates United Kingdom Vietnam Capstone Headwaters is an elite investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. Capstone Headwaters provides merger & acquisition, private placement, corporate restructuring and financial advisory services across 16 industry verticals to meet the life cycle needs of emerging enterprises. Headquartered in Boston, MA and Denver, CO, Capstone Headwaters has 19 offices in the US, UK and Brazil with a global reach that includes over 300 professionals in 33 countries. 12