HealthpointCapital Acquires CrossRoads Extremity Systems

Memphis, Tennessee-based medical device company, CrossRoads^® Extremity Systems, and New York City-based private equity firm HealthpointCapital, LLC have announced that HealthpointCapital will acquire controlling interest in CrossRoads. The terms of the transaction were not disclosed. MB Venture Partners, the Memphis-based investment firm, which was formerly the largest investor in CrossRoads, will retain a significant investment in the company.

CrossRoads Technology

Founded in 2014, CrossRoads Extremity Systems develops and markets technologies for physicians treating musculoskeletal disorders of the foot and ankle. CrossRoads signature innovation is the Active Stabilization^® technology, which simultaneously offers enhanced stability with continuous compression and optimizes conditions for bone healing in fusion procedures.

CrossRoads differentiates itself from other suppliers by offering a “hybrid implant solutions designed to address the most common rearfoot, midfoot and forefoot corrective procedures.” More specifically, CrossRoads Active Stabilization technology is sold to treat:

• MPJ [metatarsophalangeal joint fusion] – low profile design to match the anatomy of the patient offered in plates with 0,5, and 10 degrees of dorsiflexion
• Medial Column – medial column fusion anatomically designed with three options (proximal, distal, tri-joint) to address deformities in the medial column
• Lapidus – hybrid implant system with a low profile anatomic plate design
• T/N [talonavicular] Fusion – hybrid implant system with a low profile anatomic plate and 15 and 18mm clip options
• TMT [tarsometatarsal] – low profile anatomic plate design with four-hole and 5-hole plate options

CrossRoads also developed the EcoSMART^® Instrument Service, which provides customers with gamma sterilized, reusable instruments which helps hospitals to reduce the inefficiencies of traditional non-sterile instrument trays and eliminates the waste associated with typical disposable instruments.

CrossRoads EcoSMART instrument kits are packaged in an ISO 7 (Class 10,000) certified cleanroom. After a validated disinfection and cleaning process and prior to packaging, instruments undergo an additional ultrasonic cleaning, DI water rinsing, and 70% IPA ultrasonic clean/rinse.

CrossRoads reports that its EcoSMART technology has already saved its customers over $700,000.

The CrossRoads products are:

• DynaFORCE^® Fusion System – a unique active stabilization plate and clip system on the market
• CrossTIE^® Hammertoe – for treating correcting hammertoe deformity
• STRoPP^TM Plantar Plate – a single tunnel repair of plantar plate
• Nitinol Clips – DynaFORCE MotoClip Max and HiMAX Clips, continuous compression implants
• Forefoot/Midfoot Clips – DynaFORCE MotoClip Max and HiMAX Clips, continuous compression implants
• Step – continuous compression implants
• Bone Screws – headed, headless, snap-off, and MotoBAND^TM
• Allograft/Wedges – biological solutions for the foot and ankle

HealthpointCapital Background

HealthpointCapital is a New York-based private equity firm focused exclusively on the musculoskeletal sector. HealthpointCapital is led by CEO and founder John H. Foster and President and Managing Director Mike Mogul, who formerly served as Group President, Orthopaedics at Stryker Corporation and as CEO of DJO Global.

MB Venture Partners Background

Memphis-based MB Ventures, CrossRoads largest shareholder prior to this transaction, was the catalyst behind this transaction.

Founded in 2006, MB Venture Partners focuses its investments in biotechnology and medical device companies that have outstanding management teams with relevant industry experience, large addressable markets, solid science, and strong intellectual property.

MB Venture Partners prefers to invest in seed or early-stage financings, but selectively considers later-stage financings. The company focuses on companies that offer product solutions for musculoskeletal disease.

CrossRoads’ Take on the Acquisition

OTW spoke with Vernon Hartdegen, CEO and co-founder of CrossRoads. Hartdegen said, “We couldn’t be happier about partnering with Mike Mogul and the HealthpointCapital team. This partnership gives us the opportunity to expand our portfolio and accelerate growth. CrossRoads has experienced rapid growth with our Active Stabilization technology and now with this partnership we will continue to drive that platform technology while continuing to launch compelling technologies and products.”

Hartdegen continued, “HealthpointCapital is an ideal partner for us given their expertise and focus in the musculoskeletal space. Both partners have extensive expertise and track records of success and share a passion for the extremity space…This relationship, the invested capital, and the musculoskeletal expertise will allow CrossRoads to inject more innovation into the extremity space—which benefits our patients, customers, and industry. We’re excited!”

HealthpointCapital’s Take on the Acquisition

HealthpointCapital’s Managing Director Mike Mogul told OTW, “After more than a year, diligencing the best extremities companies, HealthpointCapital is excited to partner with the CrossRoads team to create the leading growth company in the sector. Stability with compression to foster bone healing has been a constant challenge in orthopedics. CrossRoads has developed an elegant solution and delivers it with excellent instrumentation for the surgeon.”

MB Venture Partners’ Take on the Acquisition

OTW spoke with Gary Stevenson, co-founder and managing partner of MB Venture Partners. Stevenson gave us some background on how the transaction occurred.

When asked how HealthpointCapital became aware of CrossRoads, Stevenson explained, “I understand from our new HealthpointCapital teammates that they had been looking in lower extremities for the ‘best company in this fast-growing sector.’ That search and due diligence took them a year or so.”

Stevenson continued, “Mike Mogul and Milen Todorov, both of whom have now joined the CrossRoads board, first met management during a trip to Memphis last fall. Shortly after, the two sides got to know each other better at the 2018 Musculoskeletal New Ventures Conference (www.mnvc.org) last October, our 16th annual event. I invited CrossRoads management to be among the list of 24 presenting companies and invited Mike Mogul to be a panelist on our investor panel. The pace of interaction picked up after the MNVC culminating in a closing earlier this month.”

When asked why MB Venture Partners decided to do this transaction, Stevenson told OTW, “CrossRoads management has been excellent stewards of the cash they have raised from its investors since inception less than 5 years ago. MB Venture Partners is the company’s largest investor and I serve on their board of directors.”

“The HealthpointCapital deal provides capital to the company to accelerate organic (new products, expanded distribution) and potentially inorganic (M&A) growth. It also provided the opportunity for some investors to achieve liquidity, since a part of the deal involves HealthpointCapital acquiring a controlling stake from existing investors.”

“Like MB Venture Partners, HealthpointCapital focuses on the musculoskeletal industry. The domain expertise and relationships of our two firms provides more than just our capital to help CrossRoads achieve its financial and strategic objectives.”

Stevenson explained why MB Ventures decided to sell some of its ownership to HealthpointCapital. “The CrossRoads deal involves existing investors selling a controlling stake in the company to HealthpointCapital. The overall percentage has not been disclosed, but each investor elected to sell none, all, or just some of their position. We had a target to hit in the aggregate, but every CrossRoads investor got to make their own decision based on their individual situation.”

While the exact percentages being sold were not disclosed, Stevenson stressed that MB Venture Partners will remain a large investor and that he will remain on the CrossRoads Extremity Systems’ board. Stevenson said, “The company’s earliest investors probably sold more than their pro-rata while the most recent investors sold less. MB Venture Partners, the company’s largest investor before this deal, chose to sell less than our pro-rata. As a result, we retained a substantial position and I will remain on the company’s board. We’re obviously very optimistic about the prospects of the company in light of its new partnership with HealthpointCapital. Same management team, same pipeline of promising products, and better capitalized for growth than ever before.”