For the second time in five years, a private equity firm is backing the St. Louis company that links small spine manufacturers, independent reps and hospitals. The model suits today’s market, but it is not without weak spots.
Avesi Partners announced on September 28 that it has invested in New Age Medical, which describes itself as a “MedTech hub” for spinal surgery. Terms were not disclosed. Founder and CEO Kevin Bly remains in charge with his current team. New Age works with more than 85 manufacturers, 100 reps, 200 hospitals and ambulatory surgery centers (ASCs), and 350 surgeons.
The deal
Compass Group Equity Partners was the first to invest, in 2021, with a plan to grow the business beyond the Midwest. At the time, New Age called itself a “value-added distributor” of spinal implants.
Avesi, based in Stamford, Connecticut, manages more than $2.2 billion. It looks for companies with $5 million to $30 million in EBITDA, so New Age is likely somewhere in that range. The firm says it wants to take the company into “new specialties and markets”. In private equity, that is usually code for buying other businesses.
What a spine hub actually is
“Spine hub” is New Age’s own term. In practice, it means acting as the “vendor of record” for the hospitals and ASCs it serves. The facility signs a contract with New Age and buys through it, instead of dealing with dozens of small suppliers. The manufacturers, most of them small or mid-sized, get into accounts they would struggle to open on their own. The reps, many of them independent contractors, bring the surgeon relationships and sell products from several brands under contracts that are already in place.
New Age bills the facility, pays the manufacturer and the rep, and keeps the difference. It also manages instrument sets and the paperwork after each case. The company has not said whether it takes title to the implants or bills on the manufacturers’ behalf. That matters, because it determines how much inventory and credit risk sits on its balance sheet.
Not a GPO
New Age is easy to mistake for a group purchasing organization, but it is closer to the opposite. GPOs such as Vizient and Premier work for hospitals. They pool purchasing volume to negotiate lower prices, never touch the product, and are funded by administrative fees paid by suppliers.
New Age works for the people selling. Hospitals buy from it directly, the reps in its network cover the cases in the OR, and its income is a margin on each sale. Put simply, a GPO helps hospitals pay less, while New Age helps small manufacturers sell more and, in the process, takes some of the administrative load off the hospital.
Why it works
For a small OEM with a good cage and no sales force, a hub like this may be the only realistic route to market. Reps get a broad product line and contracts they can sell through right away. Hospitals and ASCs deal with fewer vendors and less paperwork, and surgeons can keep using niche products with the rep they trust.
The timing is also favorable. The Globus-NuVasive merger and Stryker’s sale of its spine business to VB Spine have pushed reps and products out of long-standing arrangements. At the same time, more spine cases are moving to ASCs, which run lean and prefer to work with as few suppliers as possible.
The risks
- Compliance. Spine distribution has drawn regulatory scrutiny before, most notably the OIG’s 2013 special fraud alert on physician-owned distributorships. Nothing suggests a problem at New Age, but any buyer will look closely at ownership and commission structures.
- Dependence on reps. Surgeons tend to follow their rep, not the distributor. If an independent rep leaves, the cases may leave too.
- Pricing. Hospitals push implant prices down every year, and the intermediary’s margin is often the first to give.
- Losing manufacturers. A small OEM that takes off, or gets acquired by a larger company, may decide to go direct.
- Working capital. Sets on consignment in hospitals and slow collections both tie up cash.
Our thoughts
New Age is part of the unglamorous infrastructure of spine, and it is growing because consolidation keeps fragmenting the channel below the big players. The fact that a second investor has come in suggests the business is generating solid returns, although no figures have been published.
What Avesi is buying is a platform to build on. The likely next steps are acquisitions of regional distributors, expansion into other specialties, and a more national pitch to health systems. The key tests will be the first acquisition and New Age’s ability to hold on to its best manufacturers and reps, and to win system-wide contracts rather than facility-by-facility agreements. If it manages that, it could become a genuine alternative channel for spine companies that lack their own sales force.
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