The Health Care M&A Monthly: Medical Device M&A Robust--
Sector Posts 16 Deals Worth $9.6 Billion
The Medical Device industry has been the unheralded success story of this year’s health care M&A market. The first half of 2011 saw a total 476 deals announced worth $125.5 billion. Of that amount, Medical Devices accounted for 82 deals (17% of total deal volume) and $45.5 billion (36% of total dollar volume). As we enter the second half of 2011, the Medical Device sector looks secure in its leading position.
Deal making in July maintained Medical Device’s number one ranking. The industry posted 16 deals during the month worth a total of $9.6 billion which was, apart from the Express Scripts-Medco mega-deal, the largest single sector of health care. Roughly half of the deals involved cross-border transactions, testifying to the ongoing globalization of health care technology. The acquirers include a healthy mix of both strategic and financial buyers. The deals themselves targeted companies with a wide range of devices, products and technology, from surgical tools to in vitro diagnostic tests, from microassays to endoscopy systems.
The two largest Medical Device deals, both in the billion-dollar range, involve the acquisition and privatization of publicly traded corporations by financial buyers. In the first, Kinetic Concepts (NYSE: KCI) is being acquired by a consortium of private equity investors for $6.3 billion. Based in San Antonio, KCI is engaged in making and selling therapies and products for the advanced wound care and regenerative medicine markets. On a trailing 12-month basis, the company generated revenue of $2.0 billion, EBITDA of $624.0 million and net income of $272.0 million. Apax Partners, based in London, England, is leading the consortium of buyers, which also includes the Canada Pension Plan and Investment Board and Public Sector Pension Investment Fund. The deal values each share of KCI stock at $68.50, which offers shareholders a 6.2% premium to the prior-day price. In terms of multiples, the deal is worth nearly 3.2x revenue and 10.1x EBITDA. The buyers intend to expand Kinetic Concepts’ core business, develop new products and expand into new geographies, all outside the scrutiny of the public markets. Morgan Stanley & Co. is acting as financial advisor to the consortium, which has secured committed debt financing from Morgan Stanley & Co., BofA Merrill Lynch and Credit Suisse AG.
In July’s second largest deal, Texas-based TPG Capital is buying Immucor (NASDAQ: BLUD), an in vitro diagnostics company, for $1.97 billion. Based in Norcross, Georgia, Immucor makes and sells blood-screening tests that are used before transfusions. On a trailing 12-month basis, it generated revenue of $331.0 million, EBITDA of $149.0 million and net income of $87.0 million. With its impressive margins, BLUD holds a leading 55% share of the $1.2 billion market for blood reagents and automated blood systems, ahead of second place Johnson & Johnson (NYSE: JNJ).
Under terms of the deal, each share of BLUD is to be exchanged for $27.00 in cash, which represents a 30.2% premium to the stock’s prior-day price. The relevant acquisition multiples are 5.95x revenue and 13.2x EBITDA. Apparently, BLUD is content to take the 30% premium instead of attempting to grow a business that has not been growing in the past few quarters. But the deal may appear unduly premature; it comes just one month after a new CEO took control of BLUD. It does contain a go-shop provision until mid August for other interested parties to speak up. Goldman Sachs provided Immucor with financial advice. Citi and J.P. Morgan Securities LLC provided TPG with financial advice and also provided the company with fully committed financing...Want to read more? Click here for a free trial to The Health Care M&A Monthly and download the current issue today