Activist Irenic takes a stake in Integer. Here’s what could be next for the company

Company: Integer Holdings Corp (ITGR)

Business: Integer Holdings Company is a medical device contract development and manufacturing company. Its brands include Greatbatch Medical and Lake Region Medical. The company’s Cardio and Vascular product line offers a variety of components, subassemblies and finished devices used in interventional cardiology, structural heart, heart failure, peripheral vascular, neurovascular, interventional oncology, electrophysiology, vascular access, infusion therapy, hemodialysis, urology and gastroenterology procedures. The interventional cardiology portfolio is primarily focused on the design, development and manufacturing of catheter and wire-based technologies to diagnose and treat heart disease. Electrophysiology products include devices used by electrophysiologists and interventional cardiologists to treat cardiac arrhythmias such as atrial fibrillation.

Stock Market Value: $3.01 Billion ($85.78 per share)

Activist: Irenic Capital Management

Ownership: greater than 3%

Average Cost: no

Activist Comment: Irenic Capital was founded in October 2021 by Adam Katz, former portfolio manager at Elliott Investment Management, and Andy Dodge, former investment partner at Indaba Capital Management. Irenic invests in publicly traded companies and works collaboratively with firm leaders. The firm’s activism so far has focused primarily on strategic activism, recommending spin-offs and sales of businesses.

what’s going on

Open 18 DecemberIrenic reportedly owns more than a 3% stake in Integer Holdings and has called for a renewal of the board and an exploration of a potential sale of the company.

behind the scenes

Integer Holdings is a medical device contract development and manufacturing organization (“CDMO”). The company acts as an outsourced design and development partner for original equipment manufacturers (“OEMs”) such as Medtronic, Boston Scientific, and Johnson & Johnson. When developing new medical devices, OEMs often outsource certain components to third parties, who then become responsible for those parts throughout the product’s entire lifecycle. Integer is the largest such company and the only publicly traded medical device CDMO. From an end market perspective, the company specializes in cardiovascular and neuromodulation applications, which are generally considered to be very high quality due to their interventional and therefore quite sticky nature. Moreover, stringent regulatory and FDA approval requirements for these markets create very high barriers to change. But despite this strong market position and competitive moat, the company has struggled, with its share price falling nearly 40% in the past year.

The catalyst for this downturn was Integer’s most recent quarterly report, which disclosed that market demand for three specific products fell short of the OEM’s expectations, causing the OEMs to significantly reduce their orders from Integer. As a result, Integer faces an air gap in growth from 2026. While the company typically targets 6% to 8% organic growth, 2026 is now forecast to be between -2% and 2%. Despite assurances from management that this was just an air gap and growth would normalize in 2027, the stock fell in extended trading and in the days that followed. This kind of development, followed by assurances from management, does not usually lead to a 40 percent decline in the stock. The nature of Integer’s business imposes certain confidentiality restrictions on critical information. So while management can provide assurance, it cannot provide transparency into its own channel or the identity of its customers, programs and platforms.

On December 18, it was reported that Irenic Capital holds more than 3% shares in Integer and wants to explore the renewal of the board and the possible sale of the company. There are a few reasons why a sale makes sense here. First, Integer, the only publicly traded medical device CDMO, has no public composition and suffers from limited investor and analyst understanding and coverage. Second, as discussed above, when a company must be transparent about its sales and customers, it is much easier to operate and grow in a private environment. Third, public investors have limited information to analyze the company; Here, a private buyer, subject to a confidentiality agreement, will provide meticulous attention to detail on Integer’s products, contracts and pipeline, allowing them to undertake future growth with greater confidence. This isn’t lost on Integer management. They explored strategic alternatives in 2024 and reportedly received offers at a premium to the stock price at the time (estimated to be in the range of $110 to $115 per share). Although the company ultimately did not complete a transaction, as the stock was subsequently re-rated, the recent pullback in stock prices suggests that private equity shares should remain at a meaningful premium to today’s valuation. For example, recently Teleflex Medical announced the sale With approximately 4.7 times revenue and 16 to 17 times EBITDA of its OEM business. Integer’s biggest competitors resonatic And United Medicineboth are owned by PE and were acquired at valuations exceeding 20x EBITDA. Extrapolating these multiples to Integer, which currently trades at roughly 2x revenue and 12x EBITDA, would equate to a purchase price north of $120 per share.

In considering this decision, Irenic would like to see a board refresh that includes executives with medical OEM experience and financial acumen. This will add necessary experience in two areas that are integral to making such a transformative decision as whether to sell. Even without a potential sale of the company, this is a board in need of renewal. Five of the 11 directors will have been on the board for at least 10 years by the next annual meeting. That includes president Pamela Bailey, who has been on the board for nearly 25 years. Introducing some new perspectives can significantly improve the board’s ability to evaluate potential options that will maximize value for shareholders on a risk-adjusted basis.

Irenic has significant experience in strategic activism, identifying struggling companies in public markets, and helping businesses implement spinoffs and sales (mostly to private equity). Integer fits the firm’s playbook perfectly. While we’d generally prefer to see an activist weigh an independent thesis against a sale path, it’s hard to remember a company with less reason to remain on the public market. With the nomination deadline opening on January 21, Irenic’s next steps and whether the firm will nominate directors will be revealed soon. However, while Irenic is more than capable of running a proxy race, he has been represented on the board through compromises in the past, and we expect the firm to seek the same outcome here. Additionally, given Irenic’s strategically focused approach to his duties, we would expect the firm’s governance concerns to be alleviated if the current board initiates a formal strategic review and receives credible and value-adding proposals.

Ken Squire is the founder and president of 13D Monitor, a corporate research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, an investment fund that invests in a portfolio of activist investments.