There’s something I keep seeing in MedTech, and it still surprises me: smart companies, armed with deep expertise and healthy budgets, acquiring products that were never designed for them - and entering into prolonged remediation nightmares.
They pay handsomely – 10x multiples aren’t unusual – only to spend the next 18 months unravelling someone else’s decisions, and fixing documentation and design issues. Sometimes because the product has hidden gremlins that were fuzzy at due diligence, or sometimes because the product simply wasn’t built with them in mind, or in harmony with their quality system. It was built for an exit.
If you can afford the P&L hit and the extended timescales, internal R&D can deliver a good ROI: Perhaps the new product is deeply integrated with other internal platforms, or you want to build institutional knowledge, or the timeline aligns perfectly with your team’s availability.
Alternatively, an outsourced development can be the ideal route for those seeking deep expertise across complex technical domains.
But there is another option.
What Build-to-Buy means in practice
The build-to-buy model offers a different path. It’s not a workaround. It’s not a compromise. It’s a strategic approach that gives the buyer - the strategic - a decisive influence from day one, a faster time to market, harmonised documentation, and a good price.
Here’s how it works: a new entity is formed (not an existing start-up), often funded by private equity. You, the acquirer-in-waiting, define what success looks like. You decide how much involvement you want - anywhere from sitting on the steering committee to joining weekly update meetings. You ensure the product is designed to fit your ecosystem, your specific users’ requirements, your data strategy, your regulatory pathway.
Then, once a clear milestone is hit - often a 510(k)clearance - you buy it. Cleanly. Without the guesswork and drama. You can opt instead for a first right of refusal to reduce the magnitude of decision at the start, but I recommend a mandatory buy-out: this makes the price cheaper (i.e. the multiple lower) because it gives more certainty to the investor, and it is cleaner if you influence the design or put IP in.
The numbers still need to stack up
Of course, the investor is taking risk, and will want a return. But we’re not talking frothy venture capital expectations here. You’re not bidding against your competitors at the eleventh hour. A 3 - 4x multiple is typical – and, importantly, this comes off your balance sheet, not your P&L.
The result? You protect your internal R&D bandwidth, avoid P&L hit, get to market faster, and gain a product that fits your strategy and portfolio. Sounds sensible, right?
Why not just build it in-house?
Many companies try to insulate large R&D projects from the broader business to maximise focus - as with the development of Medtronic’s Hugo surgical robot - and this can help. But in practice, it’s very difficult to fully shield a project from the complex bureaucracy of a large organisation. One senior MedTech executive described setting up an entirely new business unit with its own P&L for a major project, only to find that “we still ended up designing by committee, and it felt like we were trying to design a horse by committee but ended up building a camel.” And beyond the organisational challenges, there’s also the financial implication: when a project is in-house, the R&D spend typically hits the P&L. In today’s environment - especially post-COVID - many companies are looking to make smarter use of balance sheet cash instead, particularly in sectors where long-term revenue forecasts far outpace short-term profitability.
Why it fails (hint: it’s not the model)
So why don’t more companies do it?
Because build-to-buy can fail before it starts - in the boardroom. Everybody likes the idea in theory: someone else pays, risk is offloaded, time to market drops. But when it comes to real commitment - when someone has to commit to a $70M acquisition in three years’ time - they hesitate.
And when that hesitation turns into half-measures - shared engineers, “optional” milestones, blurred accountabilities - things go sideways. Build-to-buy isn’t a Plan B. It’s an all-in decision. If you’re hedging, don’t bother.
Relationships are pivotal
In our experience, what makes build-to-buy work isn’t just investment structure - it’s the combination of focused execution and strong working relationships. The external development team isn’t juggling 14 priorities. They’re not getting pulled into urgent issues with legacy products or changing strategy with every change of leadership, not to mention chasing managers across multiple sites to sign off DHF documents. They are moving fast and with purpose.
But that clarity of purpose only delivers results when it’s supported by alignment and trust. The development team, the investor and the acquiring entity must work well together, and we constantly see the importance of great interpersonal chemistry.
So, look for a team of engineers and scientists, and a private equity partner, who you trust and who work well with each other - as well as with you.
Interested in hearing more?
Watch the full conversation between Paul Galluzzo, Head of Surgical Intervention and Imaging at TTP, and Steve Bell, an independent Medtech startup advisor, on the Crux of MedTech podcast.
