INDUSTRY PROFILE

Medical Equipment & Supply

Wholesalers
1.4.2021
NAICS CODES: 42345
SIC CODES: 5047

Industry Overview
Companies in this industry distribute professional medical equipment, instruments, and supplies to physicians,
hospitals, and extended care facilities. Major companies include Henry Schein, McKesson Medical-Surgical, Owens
& Minor, and Patterson Companies (all based in the US), along with OneMed (Sweden), Yamashita Medical
Instruments (Japan), and EBOS Group (Australia).
Worldwide, major markets for medical equipment and supplies include the US, Japan, Germany, France, the UK,
Italy, and China. National distributors generally participate in international markets either through their foreign
subsidiaries or through joint ventures with local companies. The medical equipment wholesale industry has been
consolidating; many companies are gaining footholds in overseas markets by acquiring companies in targeted
international markets.
The US medical equipment and supplies distribution industry includes about 10,300 establishments (single-
location companies and units of multi-location companies) with combined annual revenue of about $230 billion.

Competitive Landscape

Pressure to control health care expenditures is intensifying price negotiations for wholesalers and prompting
customers to consolidate. Many customers belong to group purchasing organizations (GPOs), which help negotiate
bulk pricing. Loss of a major GPO relationship can have a significant impact on sales.
Besides competing with peers, distributors compete with manufacturers to sell products to end users. Highly
complex and expensive equipment, such as MRI machines, is sold by manufacturers' salespeople. Competition with
product manufacturers and other distributors is based on price, customer service, breadth of product line, and value-
added services.
Large companies have economies of scale in purchasing, as well as highly developed infrastructure that allow for
efficient distribution. Small companies can compete effectively by specializing in a product line or by serving a local
market. The US industry is concentrated: the top 50 companies account for about 75% of revenue.
Competitive Advantages:

Efficient Logistics Networks - The efficiency of a wholesaler's distribution operations has a major impact on profit
margins, as the ability to raise prices is limited. Cost-control efforts can be boosted through IT and automation
programs for inventory and logistics management.
E-commerce Capabilities - Traditional wholesalers face growing pressure from internet-based competitors.
Providing easy-to-use, convenient tools that make inventory tracking and ordering easier for consumers can give
suppliers a competitive edge.
Strong Manufacturer Relationships - Wholesalers depend on the ability to fill invoice orders in a timely fashion, and
they ensure product availability through strong relationships with manufacturers. Some distributors may rely on a
small group of manufacturers for all supply needs.
Companies to Watch:
Henry Schein is a top distributor of dental supplies in the US, providing a full range of branded and private-label
equipment, furniture, disposables, and anesthetics. The company also provides goods for physicians and other
health providers and is expanding its software-based service offerings. Internationally, the company has established
subsidiaries and affiliates in about 32 countries.
Owens & Minor supplies US hospitals with surgical dressings, syringes, procedure trays, gloves, and thousands of
other essential medical supplies. The company offers products from 1,400 manufacturers as well as its private-label
MediChoice line. It also offers supply chain and packaging services in the US and Europe. O&M is utilizing
technology and data connectivity to improve efficiencies in its distribution operations.
McKesson Medical-Surgical, a division of pharmaceuticals supplier McKesson, operates 37 distribution centers
across the US serving doctors, clinics, surgery centers, nursing homes, and other medical facilities. In addition to
offering more than 6,000 private-label and branded supplies, the company provides continuing education and
consulting services.

Products, Operations & Technology

Major products include medical and surgical instruments and equipment; supplies; and orthopedic and prosthetic
appliances. Other products include dental, veterinary, and laboratory equipment and supplies. Some companies
carry more than 250,000 stock-keeping units (SKUs), while others specialize in niche markets and may carry only a
few different items to serve a local market’s specific needs.

Revenue by Product - US Census Bureau (2012)

Distributors buy high volumes of product from manufacturers and store these products at company-operated
distribution centers. Some distributors also have assembly facilities for packaging instruments and supplies into
custom and minor procedure trays and kits. Products are delivered to customers in units, pallets, or truckloads,
generally delivered by company-owned or leased trucks. Common carriers are used as needed.
Ancillary services provided to end-users include supplier, inventory, resource, and clinical supply management
services, as well as business process consulting. Companies may serve as third-party logistics and business
process outsourcing providers to manufacturers.
Technology
Online ordering systems play a major role in the industry. Distributors operate proprietary systems that allow
customers to place orders directly and receive products the next business day. Inventory monitoring, automated
vendor purchase order creation, order analysis, pricing, budget analysis, delivery scheduling, and automated billing
are components of the most refined systems. Handheld bar code scanners reduce manual inventory and ordering
errors. As health care information technology advances, suppliers are offering practice management solutions that
are compatible with electronic health record (EHR) systems.
Internally, medical device suppliers are investing in automated warehouse tools and enterprise resource planning
(ERP) systems to improve processes and shave costs. New demand forecasting, data warehousing, decision
support, and e-commerce tools are used to enhance communication with manufacturers, sales representatives,
and end-users. Owens & Minor recently implemented a voice recognition system at its distribution centers, as well
as automated picking modules at larger facilities, to enhance speed and accuracy in its logistics operations. Some
IT services are outsourced to third-party providers.

Sales & Marketing

Major end-users are hospitals; physicians, veterinarians, and dental offices; outpatient surgery centers, clinics, long-
term care facilities, and government agencies. Many users belong to buying groups known as group purchasing
organizations (GPOs) that set up long-term contracts directly with distributors based on cost-plus percentage.
Alternatively, GPOs may negotiate pricing directly with manufacturers and then contract with distributors for
distribution at a fixed price.

Marketing is through trade publications, product literature delivered directly to provider locations, social media, and
product presentations by company and supplier sales personnel. Selling is by a combination of field sales
consultants who make frequent calls on the customer, and telesales and electronic ordering when negotiated
long-term contractual agreements are in place. Sales transactions vary from a few dollars for routine consumable
supplies to several thousand for sophisticated analytical or diagnostic equipment.
Internet sales are a key component of the medical equipment distribution business. Large companies such as
McKesson Medical-Surgical operate online sales portals that include sales histories, receivables details,
inventories, and various ordering methods. Some offer handheld devices that allow customers to track inventories
and submit new orders instantly over a wireless network.

Finance & Regulation

Customers depend in large part on payments due them from insurers and Medicare and Medicaid payments from
state and federal governments. Problems along the billing/reimbursement chain can slow prompt payment. For the
US industry overall, accounts receivable average about 40 days' sales. The industry is capital-intensive: average
annual revenue per employee in the US is about $990,000.
The working capital turnover ratio for the industry in the US is about 12%. Close monitoring of inventories is required
because of the short life cycle of many products. New innovations in procedures and products can cause inventories
to become obsolete quickly. Inventories typically amount to about 50 days' sales.

Working Capital Turnover by Company Size

The working capital turnover ratio, also known as working capital to sales, is a measure of
how efficiently a company uses its capital to generate sales. Companies should be
compared to others in their industry.

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and
represents financial performance of over 4.5 million privately held businesses and detailed industry
financial benchmarks of companies in over 900 industries (SIC and NAICS). More data available at
www.microbilt.com.

Regulation

Medical equipment and supplies are subject to tight regulation by federal agencies including the Food and Drug
Administration (FDA), Environmental Protection Agency (EPA), Department of Transportation (DOT), and
Occupational Safety and Health Administration (OSHA), as well as state agencies. Along with manufacturers and
health care providers, distributors are at risk of product liability lawsuits when devices fail and injure patients. Other
regulations include federal and state fraud, abuse, and privacy laws, as well as trade protection laws, tariffs, and
such anti-corruption laws as the US Foreign Corrupt Practices Act and the UK Bribery Act. Medical wholesalers are
also subject to foreign regulatory agencies including the European Medicines Agency (EMA).

International Insights

Worldwide, major markets for medical equipment and supplies include the US, Japan, Germany, France, the UK,
Italy, and China. Major companies based outside the US include OneMed (Sweden), Yamashita Medical Instruments
(Japan), and EBOS Group (Australia).
Despite aging populations that keep demand for medical devices strong in developed markets in Europe and North
America, countries in the regions are experiencing slowing growth due to government efforts to reduce health
spending. Developing countries in Asia and Latin America including China, India, Korea, Taiwan, Mexico, and Brazil
are experiencing demand for medical devices due to burgeoning economies, aging populations, and an increased
focus on health care.
National distributors generally participate in international markets either through their foreign subsidiaries or through
joint ventures with local companies. The medical equipment wholesale industry has been consolidating; many
companies are gaining footholds in overseas markets by acquiring companies in targeted international markets.
Companies that operate internationally identify health care and trade regulations among the most pressing
business risk factors. The health care industry is highly regulated in most countries, and distributors can be
vulnerable to product liability lawsuits alongside product manufacturers. Other concerns include a lack of familiarity
with local markets, fluctuating economic environments, foreign currency exchange risks, and adverse tax
consequences.
Global demographic trends favor manufacturers and distributors of medical equipment and supplies. By 2050, the
number of people over 60 years old will be about 2 billion, according to the World Health Organization. Most of the
increase is occurring in low- and middle-income countries such as Chile, China, and Iran, leading to greater rates of
heart disease, stroke, lung disease, dementia, osteoarthritis, and visual and hearing impairments. As populations
age and become more prone to disease and chronic conditions, markets for health care and medical devices grow.
Products that will be the most impacted by this change in demographics will include hip and other joint replacement
products, cardiac devices, and home kits for monitoring chronic conditions.

Change in Dollar Value of US Trade - US International Trade Commission

Imports of medical equipment to the US come primarily from Mexico, China, Ireland,
Germany, and Switzerland. Major export markets for US medical equipment include
Netherlands, Canada, Japan, Belgium, and Mexico.
 33911 MEDICAL EQUIPMENT AND SUPPLIES

Regional Highlights

In the US, national companies face regional competition from local distributors. California, Florida, and Texas have
the most medical equipment wholesalers.

Human Resources

Workers in the industry tend to be relatively well-paid because the products sold require employees with detailed
product knowledge. Entry-level sales positions often require degrees in biology, chemistry, or engineering.
Telemarketers and warehouse personnel comprise the remainder of the workforce. The average hourly industry
wage is moderately higher than the national average. The injury rate for the entire professional and commercial
equipment wholesalers industry is less than half the national average.
Training expenses can be significant. Manufacturers hold training sessions for distributors when products are
introduced. In-house training of new hires can be lengthy because of the total number of products a salesperson
must represent to potential customers.

Industry Employment Growth

Bureau of Labor Statistics

Average Hourly Earnings & Annual Wage Increase

Bureau of Labor Statistics
Industry Growth Rating

Demand: Tied to patients receiving medical treatment

Need good merchandising and delivery
Risk: Pricing pressure and increased liability litigation

Quarterly Industry Update

1.4.2021

Opportunity: Blockchain Transformation - Wholesale distributors are leveraging blockchain, as this technology
promises to enhance product development, commercial operations, and distribution of medical equipment and
supplies. Data in clinical trials may be altered, lost, or unnoticeable changes, which may compromise the result of
the product. Blockchain technologies can help with product development issues due to the effective management of
critical data. The data integrity and security brought by blockchain technology could accelerate the review and
approval process of regulators, which will hasten product introductions and may boost opportunities for medical
product distributors. Blockchain technologies can also be applied to supply chain management to easily and
transparently trace products in the distribution channel. Once the data is transmitted to the blockchain, it cannot be
changed, preventing any manipulation or security breaches, resulting in permanent tracking on each product.
Industry Impact - Companies may benefit from the blockchain technology due to its efficient data management and
security. Wholesale distributors may scout for emerging technologies that could shape the future of the industry and
also to stay competitive in the market.

11.30.2020

Trend: Artificial Intelligence - Wholesale distributors are starting to deploy technologies that use artificial
intelligence in order to take advantage of benefits such as improving operational efficiency and enabling data-driven
decision making. Artificial intelligence performs a cyclical process where it takes and analyzes data, uses the results
in formulating solutions, and adjusts for a new cycle based on additional data. Thus, the system grows smarter over
time like the human brain. In wholesale distribution, this technology has been employed in automating
administrative tasks including sales, billing, and accounting. Artificial intelligence also aids in making decisions
based on historical, current, and predictive data. For example, it can differentiate between customers that are likely to
pay for accounts receivable after a reminder and those that require the services of collection agencies. For
optimization purposes, it identifies the best value of factors such as pricing, which products to offer in cross-selling
and upselling, the times when customers are more likely to answer a call, and the individual customer preferences.
The AI for Sales of Microsoft Dynamics 365 can determine the factors that influence purchasing such as the quality of
assistance provided by sales agent and whether the customer has purchased a related product.
Industry Impact - With artificial intelligence, wholesalers can improve their operational efficiency, productivity, sales,
and profitability. These benefits help wholesale distributors to remain competitive.

10.26.2020

Trend: Medical Technology Suppliers Trade Fair - One of the leading equipment fairs in Asia-Pacific, China
International Medical Equipment Fair (CMEF) will be conducted in Shanghai during October after being postponed
from April. This fair will make it one of the first major international medical technology platforms that will take place
again under strict security conditions, according to the Innovations Report. Various high-tech companies will
showcase their products in this medical technology market. Participating companies such as FISBA AG develops
customized micro cameras with an expert performance for minimally invasive surgery and diagnostics. Other
companies participating are Physik Instrumente (PI), one of the leading providers of motion and positioning
systems, Specialty Coating Systems, dealing in Parylene conformal coatings and technologies, and so on,
according to Innovation Report.
Industry Impact - This major fair for the medical device industry will represent many innovative ideas and expand its
market reach in the Asia-pacific region that has a sizable potential future market scope.

8.17.2020

Trend: FDA Approves New Approach to Emergency Response - Formerly available solely in Europe, Philips’
Tempus ALS solution has recently been launched in the United States and has paved the way for universal
connectivity in emergency medical service (EMS) equipment, enabling rich real-time data transmission and two-way
communication between healthcare professionals, reported by Medgadget. The approval of US-FDA for Tempus ALS
monitoring and defibrillator completes Philips’ Emergency Care and Resuscitation Systems, alongside IntelliSpace
Corsium and Tempus Pro. With its user-friendly feature, Tempus ALS allows emergency medical providers to focus
on caring for the patient without the hassle or distraction of bulky equipment. Arman Voskerchyan, General Manager
of Therapeutic Care at Philips, claimed that this approach will help expand the pre-hospital scope of care for first
responders in a fully integrated solution, and ultimately bolster confident treatment and transport decisions outside
the hospital.
Industry Impact - Wholesalers and distributors of medical equipment may look into the salability of Philips’ ALS
products and may likely expand their product offerings if the concept proves profitable.

Industry Indicators
The average US retail price for diesel and regular gas, a major operating cost for medical equipment distributor
fleets, fell 18.5 percent and 14.4 percent respectively in the week ending September 14, 2020, compared to the
same week in 2019.
US consumer prices for medical care commodities, which may impact medical equipment makers' profitability, rose
0.8 percent in August 2020 compared to the same period in 2019.
Total US wholesale sales of durable goods, a potential measure of medical equipment demand, decreased 1.1
percent in July 2020 compared to the same month in 2019.

Industry Forecast
Domestic demand for US medical instruments and supplies, an indicator for wholesalers, is forecast to grow at an
annual compounded rate of 4% between 2020 and 2024. Data Published: July 2020

First Research forecasts are based on INFORUM forecasts that are licensed from the Interindustry Economic
Research Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro" approach to modeling the
economy captures the links between industries and the aggregate economy. Forecast FAQs

Industry Drivers
Changes in the economic environment that may positively or negatively affect industry growth.
Data provided by First Research analysts and reviewed annually

Interest Rates Change in prime and related interest rates

Technology Innovation Advances in science and technology, including information technology

Government Regulations Changes in federal, state, or local government regulations or business-related

policies

Critical Issues
Impacts of Outbreaks - Driven by the pandemic, sales for medical equipment and supplies have become limited; In
result, the demand for wholesale distributor services has dropped accordingly. The global economic downturn
caused by the public health crisis has negatively influenced businesses’ sales, results of operations, and financial
conditions. Travel restrictions and home quarantine imposed by the governments have resulted in closures of
medical facilities, and a weakened workforce.
Cost-Containment Efforts - Total health care spending continues to rise, and distributors are pressured by
manufacturers, care providers, and insurers to contain costs. Health reform efforts in the US and other countries
encourage cost reduction methods such as alternative payment models and the reduction of unnecessary medical
procedures. US retail spending on durable medical equipment rose by 5% in 2019 due to growth in out-of-pocket
spending, Medicare spending, and private health insurance. Overall US health care spending increased by 4.6%.

Business Challenges
Competition from GPOs - Many of the nation's hospitals and physician offices belong to group purchasing
organizations (GPOs), which can negotiate bulk sales at reduced prices directly from manufacturers. Distributors
working with GPOs are still paid for their services, but they don't have the opportunity to resell at a higher price.
Maintaining Supplier Base - Even large distributors may rely on just a few manufacturers for the bulk of their
offerings. Small specialty wholesalers may, in some instances, depend on one or two companies for their entire
revenue stream. The loss of a major supplier can significantly impact a company's financial performance.
Competition from Manufacturers - Manufacturers regularly review the contribution of wholesale distribution in the
supply chain. Manufacturers that feel that distributors aren't serving the manufacturer's best interest will use captive
sales teams. A significant amount of medical equipment and supplies is sold directly to users by manufacturer
sales teams.
Increased Liability Litigation - Product liability litigation continues to grow as medical devices are introduced. The
wholesaler/distributor selling the product may be a named defendant in such lawsuits and be financially responsible
for claims in excess of liability insurance coverage or manufacturer indemnification agreements. Adverse publicity
can damage the distributor’s reputation and monetary awards can increase product liability insurance premiums.
Obsolete Inventory - With new product innovations entering the market rapidly, existing products can become
obsolete very quickly. International markets that lag the technology curve often buy these obsolete products, but
pricing concessions to move them can still hurt distributors.
Competition from Online Retailers - As Amazon pushes its operations further into the health care realm, distributors
of medical equipment and supplies may feel the pinch of competition. The company is looking to expand the health
care supply operations of its Amazon Business unit, which already carries a limited selection of medical goods.
Amazon is hoping to shake up dated supply-chain options and differentiate through a marketplace concept, allowing
health network employees to compare Amazon Business prices against existing distributor prices via a customized
catalog.

Business Trends
Shifting Role of Wholesalers - Historically, distributors took title to manufactured goods, held them in inventory until
the health care provider placed an order, then shipped the product from its distribution center to customers.
Manufacturers are continuously examining ways to streamline the supply chain to end-users, including creating and
managing the distribution function themselves. Wholesalers are developing decision support systems that add
value over and above traditional inventory warehousing and shipping functions. Consulting and outsourcing
services, computer systems, and software sales are also part of the comprehensive offerings aimed to help secure
a wholesale distributor’s position in the supply chain.
Consolidation - Consolidation among health care providers and distributors is changing the way medical equipment
is distributed. Major players are acquiring smaller distributors to expand offerings and volume to absorb increasing
system and infrastructure costs involved in offering value-added services. Small to medium players can't afford to
spend the necessary dollars to develop the robust platforms to compete with supply chain value-added services.
Many small distributors have excellent relationships with end-users and product lines that are non-competing, yet
complementary, with those of the potential acquirer.

Health Care Reform - Governments in nations around the globe are working to control rising medical costs through
health care reform laws. In the US, officials are working to increase access to health care for millions of Americans,
which increases demand for medical equipment. However, distributors continue to see pressure to keep costs low.
Medical providers have a greater incentive to resist price increases as private insurers and government payers move
to limit payments for many medical treatments that require medical supplies or devices.

Industry Opportunities
Increased Demand from Outpatient/Surgical Centers - Many noninvasive surgical procedures, and some invasive
ones, have been transferred out of the hospital and into walk-in facilities that perform same-day services. This trend
will continue as it is saves the payer money (no overnight hospital stay). In addition, new emergency and walk-in
health clinics are being established to relieve overcrowded hospital emergency rooms. As a result of these trends,
distributors focusing on the outpatient sector may enjoy strong demand.
Favorable Demographics - Demand for medical care, supplies, and equipment is expected to rise rapidly as the US
population ages. The number of Americans 65 and older is expected to increase by 39% between 2016 and 2030,
compared to a 10% increase in the population as a whole. Health spending accounts for 17.9% of GDP in the US
and is projected to reach 19.4% by 2027.
New Product Introductions - Innovations in technology allow for the development of new equipment, instruments,
and supplies. Distributors that align with manufacturers introducing these products have the opportunity to add lines
and improve existing ones. The rapid pace of these product introductions can accelerate when regulators streamline
the review and approval processes.
Emerging Markets - Investment in health care infrastructure in developing nations creates a stronger demand for
medical devices and equipment. Distributors can find additional opportunities in nations with burgeoning
economies and aging populations, especially in Asian and Latin American countries such as South Korea and
Brazil. Such developing markets provide attractive alternatives to more saturated markets with higher regulatory
standards.

Executive Insight

Chief Executive Officer - CEO

Adapting to Changes in Health Care Delivery

Developments such as health care reform, new health care delivery options, the increasing purchasing power of
group purchasing organizations (GPO), and product introductions have created a dynamic environment for
customers of medical equipment distributors. Staying abreast of these changes and developing new business
strategies rapidly to optimize performance are critical to success.
Developing Growth Strategy
While the medical equipment distribution industry is expected to continue its robust growth for several years as the
population ages, companies will have to increase sales volume as gross margins are likely to remain stagnant or
even shrink. Companies with available infrastructure capacity can acquire additional volume by adding product lines,
acquiring other companies, or packaging a repertoire of products to serve a specific niche, such as operating rooms.
Focus on growth is critical to success.

Chief Financial Officer - CFO

Financing Expansion Opportunities

Consolidation is a constant in the industry, and companies must be able to marshal sufficient funds to finance
expansions as opportunities arise. Companies will have to be able to obtain financing through self-generated cash,
equity investments, and debt financing. Achieving the proper balance of debt and equity to satisfy owners and
lenders is key to expanding at a pace that can be supported.
Negotiating Favorable Manufacturer Contracts
Negotiating favorable manufacturer contracts to minimize cash requirements during high growth periods will be
important. Payment terms, volume and performance incentives, and service and delivery to maximize inventory turns
should all be considered when structuring purchase contracts. Minimizing cash requirements can be especially
important when annual contracts on a cost-plus basis are negotiated between manufacturer and customer.

Chief Information Officer - CIO

Enhancing Delivery Platforms

Customers want tools that make doing business easier. Technology platforms that allow customers ease of order
entry, inventory tracking, and data refinements facilitate sales. Hand-held, wireless, and remote order entry and data
retrieval tools are now available. Owens & Minor offers operating room-centered inventory management tools that
enable customers to reduce inventories of high-cost surgical supplies.
Reducing Replenishment Times with Technology
The ability to reduce cycle times is important to the medical supply industry. Customers want to order and receive
supplies and equipment quickly. Data management tools allow a direct tie-in between the company and customers,
allowing the customer to examine historical usage, forecast, and order supplies based on these usage trends,
reducing order replenishment times.

Human Resources - HR

Recruiting and Retention Programs

Effectively recruiting and retaining employees is critical. Most training and development expenditures are directed
toward sales personnel, who are among the higher-paid employees. Rapid turnover among salespeople can drive
up costs quickly. Attractive benefit packages, employee recognition, and advancement opportunities contribute to a
successful retention program.
Controlling Training Expenses
Training can be expensive in the medical equipment and supplies business. New employees must be trained on a
multitude of product lines, and long-time employees must be trained each time a new product is added. Since many
companies carry several hundred products, training can become time-consuming and expensive if not effectively
managed. Manufacturers sponsor product seminars, and companies provide their own corporate training initiatives
to contribute to efficient training.
VP Sales/Marketing - Sales

Expanding into High-Growth Channels

Areas experiencing higher growth rates include centers for same-day surgery, cosmetic and elective surgery, and
elder care. Sales and marketing strategies developed for each of these high-growth areas allow opportunities for
growth and better gross margins. Hospitals, while representing the highest volume opportunity, are the most difficult
channel because most now fall under group purchasing organizations (GPO) or network purchasing contracts.
Smaller regional companies, in particular, concentrate on these high-growth customers.

Building Customer Relations

Employees in the health care delivery system are overloaded. Purchasing personnel and administrators want to do
business with organizations that require little time and are convenient. An advantage is enjoyed by those companies
whose sales personnel make themselves readily accessible and have efficient supply chain support systems.
Building relationships with those in charge of buying decisions and their administrative personnel is important.

Call Prep Questions

Conversation Starters

How is the company jeopardized by the prevailing virus?

Driven by the pandemic, sales for medical equipment and supplies have become limited; In result, the demand for
wholesale distributor services has dropped accordingly.
How have health care cost-containment efforts impacted company growth?
Total health care spending continues to rise, and distributors are pressured by manufacturers, care providers, and
insurers to contain costs.
What percentage of company sales is through group purchasing organizations (GPOs)?
Many of the nation's hospitals and physician offices belong to group purchasing organizations (GPOs), which can
negotiate bulk sales at reduced prices directly from manufacturers.
What opportunity does the company see in sales to outpatient surgery centers and other alternative care
facilities?
Many noninvasive surgical procedures, and some invasive ones, have been transferred out of the hospital and into
walk-in facilities that perform same-day services.
How have changing demographics affected the company's product mix?
Demand for medical care, supplies, and equipment is expected to rise rapidly as the US population ages.
What new product categories look most promising to the company?
Innovations in technology allow for the development of new equipment, instruments, and supplies.

Quarterly Industry Update

How has the company benefited from blockchain technology?

Wholesale distributors are leveraging blockchain, as this technology promises to enhance product development,
commercial operations, and the distribution of medical equipment and supplies.

Operations, Products, and Facilities

How many facilities does the company operate?

Most local and regional companies have a single location. Large national distributors may have as many as 50
distribution centers.

What product lines does the company handle?

Major product categories include medical and surgical supplies and instruments and equipment.

How many items does the company carry?

Some companies carry a limited number of items to serve their niche market. Others may carry more than 250,000
items.
How does the company deliver product to customers?
Most distributors use a captive fleet of vehicles either owned outright or leased.
What value-added services does the company provide?
Distributors may provide supply chain management consulting and software systems to secure their position with
customers.
What is the company’s normal lead time from order placement to delivery?
Some companies have refined the process to be able to provide next day service on most items ordered.

Customers, Marketing, Pricing, Competition

Who are the company’s major customers?

Customers include hospitals, physician practices, outpatient surgery centers, clinics, dental offices, and extended
care facilities.
How many customers does the company serve?
Some distributors target many customers with a limited product line. Others target a few customers with a broad
product line.
What type of marketing does the company find most effective?
Companies use product demonstrations and presentations, product literature, and trade journal advertising.
Who are the company's major competitors?
The company competes with other wholesaler/distributors, and with manufacturer-direct sales teams that don't use
the wholesale/distribution channel.
How are product prices set?
A company is typically compensated on a cost-plus percentage basis added to the product cost agreed to by the
distributor and the manufacturer.
How is the company using technology to enhance customer service?
Companies now offer full-line inventory, purchase order, and supply chain management systems to enhance
customer service. Services provided may include actual ordering for and management of customer inventories.

Regulations, R&D, Imports and Exports

What percentage of the company’s product lines is from foreign manufacturers?

A growing number of commodity products are being imported from China, Ireland, and Mexico.
What percentage of the company’s business are international sales?
National companies service a growing international demand, while local and regional companies focus on
subsectors of the US market.
To what extent is the company involved in any significant litigation regarding product liability claims?
Normally when a product manufacturer is sued, the distributor selling the product to the end-user is also a named
defendant.
What effect has health reform had on the company?
Demand for medical equipment should increase as more Americans get access to health care, but distributors may
continue to see pressure to keep costs low.

Organization and Management

How active are the owners of the company in day-to-day management?

The largest companies are publicly held; however, most are privately held and the owners are actively involved in the
daily business.
How does the company recruit talent?
Personnel requiring degrees in biology, chemistry, and other sciences are recruited from college campuses.
Experienced personnel are recruited via traditional methods but often come from manufacturer sales teams.
How does the company train employees?
Some companies have in-house “universities” to train employees in product knowledge, management, leadership,
finance, operations, and sales.
How do sales reps attain and maintain product knowledge?
Most manufacturers host seminars and training symposiums and provide tutorials for their distributor sales team.
What is the company's employee turnover rate?
Companies in the industry generally have stable workforces. Relatively high wages help maintain stability.

Financial Analysis

How seasonal is the company's cash flow?

Third and fourth quarters are usually generate the highest revenue due to manufacturer desire to get new products to
market before year-end.

How does the company handle obsolete inventory?

Some companies sell obsolete inventory to overseas markets.

What are the company's expansion plans?

Many companies have expanded facilities in the past few years to keep up with industry growth.
How is the company exposed to foreign currency risk?
Companies that sell US-made products to foreign markets and those that import products for sale in the US have
varying degrees of foreign currency risk.

Business and Technology Strategies

What plans does the company have to grow new market segments?
The fastest-growing segments are outpatient surgical centers and services for the aged.
What role will acquisitions play in the company's growth?
Acquisition strategies are common in the industry, especially as volume becomes more critical to success.
How dependent is the company on technology introductions by its suppliers?
Manufacturer product lines combine stable, mature product successes with new product introductions. Most
distributors depend on both.
What new product lines are being added to service fast-growing market segments?
Same-day surgical centers, cosmetic and elective procedures, and nursing home products are among the fastest-
growing segments.
What initiatives are underway to improve the company’s competitive posture?
Employee training, vendor relationship programs, technology improvements, expanded value-added services, and
customer support are among the most important.

Financial Information

COMPANY BENCHMARK TRENDS

Quick Ratio by Company Size

The quick ratio, also known as the acid test ratio, measures a company's ability to meet short-term obligations with
liquid assets. The higher the ratio, the better; a number below 1 signals financial distress. Use the quick ratio to
determine if companies in an industry are typically able to pay off their current liabilities.

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial
performance of over 4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900
industries (SIC and NAICS). More data available at www.microbilt.com.

Current Liabilities to Net Worth by Company Size

The ratio of current liabilities to net worth, also called current liabilities to equity, indicates the amount due creditors
within a year as a percentage of stockholders' equity in a company. A high ratio (above 80 percent) can indicate
trouble.

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial
performance of over 4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900
industries (SIC and NAICS). More data available at www.microbilt.com.
COMPANY BENCHMARK INFORMATION

NAICS: 42345

Data Period: 2018 Last Update February 2020

Table Data Format Mean

Company Size All Large Medium Small

Size by Revenue Over $50M $5M - $50M Under $5M

Company Count 15883 87 1223 14573

Income Statement

Net Sales 100% 100% 100% 100%

Gross Margin 25.9% 25.7% 26.2% 25.9%

Officer Compensation 1.8% 1.3% 1.7% 2.9%

Advertising & Sales 0.7% 0.7% 0.8% 0.7%

Other Operating Expenses 21.3% 21.7% 21.5% 20.3%

Operating Expenses 23.8% 23.7% 23.9% 23.9%

Operating Income 2.1% 2.0% 2.2% 1.9%

Net Income 1.0% 1.0% 1.1% 0.9%

Balance Sheet

Cash 9.9% 7.8% 11.2% 11.2%

Accounts Receivable 32.6% 32.6% 31.9% 33.5%

Inventory 26.4% 26.0% 27.3% 25.4%

Total Current Assets 76.4% 74.5% 77.6% 77.7%

Property, Plant & Equipment 9.6% 9.3% 9.7% 9.9%

Other Non-Current Assets 14.0% 16.2% 12.8% 12.4%

Total Assets 100.0% 100.0% 100.0% 100.0%

Accounts Payable 21.4% 20.3% 22.1% 22.2%

Total Current Liabilities 37.3% 35.7% 38.2% 38.5%

Total Long Term Liabilities 19.6% 17.7% 20.3% 21.6%

Net Worth 43.2% 46.6% 41.5% 40.0%

Financial Ratios

Quick Ratio 1.20 1.23 1.16 1.22

Current Ratio 2.05 2.09 2.03 2.02

Current Liabilities to Net Worth 86.4% 76.5% 92.0% 96.3%

Current Liabilities to Inventory x1.41 x1.37 x1.40 x1.51

Total Debt to Net Worth x1.32 x1.14 x1.41 x1.50

Fixed Assets to Net Worth x0.22 x0.20 x0.23 x0.25

Days Accounts Receivable 37 36 38 37

Inventory Turnover x9.01 x9.37 x8.37 x9.51

Total Assets to Sales 32.1% 31.3% 33.3% 31.6%

Working Capital to Sales 12.5% 12.1% 13.1% 12.4%

Accounts Payable to Sales 6.7% 6.2% 7.2% 6.8%

Pre-Tax Return on Sales 1.6% 1.6% 1.8% 1.5%

Pre-Tax Return on Assets 5.1% 5.0% 5.5% 4.8%

Pre-Tax Return on Net Worth 11.9% 10.8% 13.2% 12.1%

Interest Coverage x3.53 x3.27 x3.93 x3.53

EBITDA to Sales 3.7% 3.8% 3.7% 3.4%

Capital Expenditures to Sales 1.9% 2.1% 1.8% 1.7%

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial
performance of over 4.5 million privately held businesses and detailed industry financial benchmarks of companies in over
900 industries (SIC and NAICS). More data available at www.microbilt.com.

ECONOMIC STATISTICS AND INFORMATION

Index of Industrial Production - Federal Reserve Board

VALUATION MULTIPLES

Medical Equipment & Supply Wholesalers

Acquisition multiples below are calculated medians using at least 3 US private industry transactions completed
between 1/2008 and 12/2019 and are based on middle-market transactions where the market value of invested
capital (the selling price) was less than $1B. Data updated annually. Last updated: December 2019.

Valuation Multiple MVIC/Net Sales MVIC/Gross Profit MVIC/EBIT MVIC/EBITDA

Median Value 0.6 1.1 3.2 2.9

MVIC (Market Value of Invested Capital) = Also known as the selling price, the MVIC is the total consideration paid to
the seller and includes any cash, notes and/or securities that were used as a form of payment plus any interest-
bearing liabilities assumed by the buyer.
Net Sales = Annual Gross Sales, net of returns and discounts allowed, if any.
Gross Profit = Net Sales - Cost of Goods Sold
EBIT = Operating Profit
EBITDA = Operating Profit + Noncash Charges

SOURCE: DealStats (formerly Pratt's Stats), 2019 (Portland, OR: Business Valuation Resources, LLC). Used with
permission. DealStats is available at https://www.bvresources.com/learn/dealstats

Industry Websites
Health Industry Distributors Association
Contains industry news, education, and resource listings.
Medical Device Manufacturers Association
Medical product news, industry issues.
Medtech Canada
Media, events, issues, advocacy, and resources.
Repertoire
Magazine serving the health care distribution industry.

Glossary of Acronyms
ACA - Affordable Care Act
GPO - group purchasing organization
HIDA - Health Industry Distributors Association
MDMA - Medical Device Manufacturers Association
SKU - stock-keeping unit