When Medtronic CEO Geoff Martha introduced a new operating model in 2020 with the aim of accelerating organic revenue growth, he conceded that the company, a longtime leader in medtech innovation, too often found itself trailing its competitors on that measure.
Last fall, Medtronic took another step toward achieving its goal with plans to spin off its connected patient monitoring and respiratory care operations, businesses that are growing slower than the company overall. Divesting them would give Medtronic’s revenue growth rate a modest boost, the device maker said at the time.
In the patient monitoring arena, Medtronic has ceded market share to competitor Masimo, whose business model is focused on connected-care technologies such as pulse oximetry, said Needham analyst Mike Matson. Pulse oximetry measures oxygen saturation in arterial blood.
“Home monitoring – I do think that is where things are headed. That is the future. Just connected care generally. Masimo is trying to build a whole business around it,” Matson said.
While analysts say creating a standalone connected-care entity could jump-start growth for both Medtronic and the new company, they also point out that the success of recent spinoffs in the medtech sector has been hit or miss.
Among recent medtech spinoffs, shares in GE HealthCare and Novartis’ Alcon have climbed since their public offerings, while other stocks such as Zimmer Biomet’s ZimVie and BD’s Embecta have dropped after making their public debut.
“We’ve seen a ton of spinoffs in medtech over the past few years. Investors have an easier time valuing companies that are more streamlined, that are more focused,” said BTIG analyst Ryan Zimmerman. “It's not just access to capital. It’s investor appetite for those types of companies.”
Medtronic also has faced pressure from investors who see the company as too big and too much of a conglomerate to accelerate growth, the analyst said.
“Shedding some of these businesses that are slower growth and serve as somewhat of an anchor ultimately will help streamline and improve Medtronic,” Zimmerman said.
Medtronic hasn’t provided further updates on progress toward its spinoff or sale since October. Bloomberg News, citing people familiar with the matter, reported in December that Siemens, GE HealthCare and private equity firms were interested in buying the Medtronic units.
At the time that Martha announced the reorganization of Medtronic’s businesses into 20 operating units, he also set out an organic revenue growth target of 5% or above.
“They haven’t hit this,” Zimmerman noted.
The operations that Medtronic intends to spin off or sell include respiratory therapies and monitoring, blood oxygen management, and anesthesia and perfusion monitoring.
The businesses represent about 7% of Medtronic’s total sales, according to J.P. Morgan analyst Robbie Marcus.
He called the planned divestiture at the time a step in the right direction, saying a separation of the businesses should allow for better allocation of capital, though it likely wouldn’t “move the needle much” on Medtronic’s valuation.