Thought I’d get back on Substack and hopefully add some value with a recap of Strata Critical Medical’s (SRTA) Investor Day at the Nasdaq (11/17).

I expect to go into more detail later this week or early next with a research piece, but some highlights listed below for those looking for LT names in the SMID space:

1) Executive Transition was seamless post-Blade divestiture to $JOBY. Will Heyburn and Melissa Tomkiel bring an interesting dynamic to the space as Co-CEOs. Both understand the company’s opportunity set and how to effectively consolidate a fragmented industry.

2) The acquisition of Keystone Perfusion seems to be a homerun so far. Keystone’s leadership team and domain expertise is truly impressive. I’m not a HC guy, yet they were able to convey how they were successful before, where they can add dynamic growth, organically or via M&A, and their framework for effective uses of capital. All of which pairs nicely with Strata’s existing approach.

3) The industry is far more fragmented than almost any other industry I’ve encountered.

-Industry Rules & Regulations seem to be playing catchup given all the changes. With industry standards still in flux, companies like Strata will help set the standard, making it nearly impossible for small players to take market share, getting rolled up as a result.

-Small players are ripe to be taken out at low multiples given how hard it is to scale and lack of infrastructure to expand horizontally or vertically without serious execution risk. Acquirers have the leverage to take out these companies at single-digit EBITDA multiples given (I) small players inability to scale, (II) customer churn increasing due to bigger players infra, and (III) aforementioned high-bar standards being set will lead to further margin deterioration. These three things will be the inflection point for significant M&A in the next year or so

4) Organ procurement, transportation (Air/Ground), and related procedures are not for the faint of heart, nor “exciting” given the complexities, but it’s a damn good business if executed properly. Market multiples will remain compressed until consolidation occurs, but acquisition-driven growth is even cheaper. Hard to see multiples remaining compressed much longer after the market realizes this

5) Scalability is hard for large players too, but once the gap is bridged, like in the case of Strata and Keystone, economies of scale create wide competitive moats and gives Strata significant leverage in future M&A.

6) Organic growth continues to move along in mid-teens, but acquisitions speed up customer acquisition timelines significantly. Once converted, new customers also provide incremental revs across business segments, like clinical services, further improving margins and long-term growth.

7) Advancements (2018 onwards) in MedTech and improved procedures have expanded TAM due to longer viability of organs for transplants. Longer viability = more serviceable contracts = further entrenchment as the leader in the space. TAM remains relatively small, but RoC has picked up with recent advancements as we’ve seen from companies like TransMedics (TMDX). The irony here is that the transporters and tech agnostic service providers help drive that same growth that TMDX receives a premium for rather than getting rewarded themselves for being a large set of end users.

All-in-all, we remain impressed and look forward to watching the $SRTA team execute for shareholders.

Disclosure: Alpha Loop Capital is long $SRTA