The Health Care M&A Monthly: Medical Device Deals Dominate--
Sector Continues To Grab Biggest Share Of Market
The Medical Device industry continues its domination of the health care M&A market. As noted above, this sector captured 22% of the deal volume and 40% of the dollar volume in the first month of 2012. Below we analyze some of the deals that are feeding this frenzy.
In the largest deal of the month, one that accounts for one-third of all M&A dollars committed in January, Roche Holding (VX: ROG) launched a hostile bid for Illumina (NASDAQ: ILMN). Based in San Diego, ILMN develops, manufactures and markets integrated systems for the analysis of genetic variation and biological function. Serving predominantly academic research labs, the company generates revenue of $1.1 billion and EBITDA of $309.3 million. Roche reasons that if it can transition ILMN’s business from academic research labs to diagnostic labs, ILMN’s infrastructure would enhance its ability to provide targeted diagnoses of conditions that could then be matched with customized therapies, the holy grail of personalized medicine. Roche is offering to pay $44.50 in cash per share, which yields a price of $5.7 billion and a price to revenue multiple of nearly 5.2x. This approach offers ILMN shareholders an 18% premium to the stock’s prior-day price, but a 60% premium to its price before takeover rumors began. So far ILMN has resisted Roche’s offer, going so far as to adopt a poison pill defense. The company’s stance is that the bid undervalues the company and that it would be more successful on its own, perhaps coyly signaling that it wants a meaningful change-of-control premium if it is to hand over the reins. Roche, however, with its track record of successfully pursuing hostile takeovers (recall how patiently it coaxed Genentech into the fold) is not to be deterred and will continue its pursuit. Analysts reckon that shareholder resolve will melt at about $60.00 per share, so stay tuned.
The next largest deal is less than one-tenth the size of the Roche-Illumina affair. AngioDynamics (NASDAQ: ANGO) is acquiring Navilyst Medical from private equity firm Avista Capital Partners for $372.0 million in stock. Based in eastern Massachussets, Navilyst is a manufacturer of vascular access devices used in surgery, transfusions and delivery of antibiotics. This deal doubles the size of ANGO’s vascular access business. It is to be financed with $97.0 million in cash on hand and $150.0 million from a financing facility. Acquired tax assets will reduce the net purchase price by $80.0 million to $292.0 million, lowering the effective price to revenue multiple to 1.96x. JP Morgan Securities and Barclays Capital provided ANGO and Navilyst, respectively, with financial advice on this deal.
Avista is also selling BioReliance Holdings to Sigma-Aldrich Corp. (NASDAQ: SIAL) for $350.0 million in cash. Based in Rockville, Maryland, BioReliance is a global provider of biopharmaceutical testing services. It provides services in biologics testing, specialized toxicology and animal health testing. The addition of BioReliance’s QA/QC testing services allows SIAL to better support customers’ needs in determining the quality and integrity of biological drugs at each stage of the development and manufacturing process. The deal, valued at 3.2x revenue, is to be funded from a combination of cash on hand and credit facilities. Morgan Stanley and JP Morgan Securities provided SIAL and BioReliance, respectively, with financial advice. Avista originally acquired BioReliance from Life Technologies Corp. (then known as Invitrogen) for $210.0 million in 2007, or 1.9x revenue. The current deal closed February 1, 2012.
Smith & Nephew plc (LSE: SNN), Britain’s largest medical device company, is selling a majority interest in its biologics and clinical therapies unit, to Essex Woodlands, a New York City-based private equity firm, for $258.0 million. Essex is paying $98.0 million in cash and $160.0 million in a five-year note. The new U.S.-based joint venture is to be known as Bioventus, LLC, and will be 51% owned by Essex Woodlands and 49% owned by SNN. Its product line includes the Exogen Ultrasound Bone Healing System and hyaluronic acid joint fluid therapy products, Supartz and Durolane, which treat the symptoms of osteoarthritis. This sale frees up resources for SNN to grow and shore up its core orthopedics business in the near term. This spin-off values a 100% share of the company at about $515.0 million, and implies a price to revenue multiple of 2.7x...Want to read more? Click here for a free trial to The Health Care M&A Monthly and download the current issue today