The Health Care M&A Monthly: Medical Device Merger Mania

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The month of April saw a surge of dealmaking in the Medical Device sector, with a total of 14 transactions announced. Based on revealed prices, the total amount spent to fund this activity was $4.7 billion, or 59% of all M&A dollars spent during the month. Included in this group are two billion-dollar deals.
In the larger of the two, Danaher Corp. (NYSE: DHR) is paying $2 billion to acquire Sybron Dental Specialties (NYSE: SYD), a manufacturer of equipment for the dental industry. SYD’s portfolio includes products for orthodontics, endodontics and implants. On a trailing 12-month basis, SYD generated revenue of $659 million, EBITDA of $150 million and net income of $76 million.
The buyer, Danaher Corp., designs, manufactures and markets a wide variety of industrial and consumer products, primarily operating in process/environmental controls and tools and components. On a trailing 12-month basis, DHR generated revenue of $7.9 billion, EBITDA of $1.35 billion and net income of $897 million. Under terms of the deal, DHR will launch a tender offer of $47.00 in cash for each share of SYD common stock outstanding. When $200 million in assumed debt is added to the total, the purchase price reaches $2 billion.
This transaction, valued at 3x revenue and 13.3x EBITDA, extends Danaher’s dental portfolio into consumables and small equipment and offers SYD shareholders a 12.7% premium to its prior-day closing price. Credit Suisse acted as financial advisor to SYD in this transaction.
We note that before Danaher made its move, Sybron announced a smallish acquisition in early April, targeting New Jersey-based Dental Disposables, which manufactures disposable infection prevention devices for the dental industry and generates annual revenue of $5 million. No price was given for this all-cash deal.
In April’s second billion-dollar deal, Siemens Medical Solutions, a division of Siemens AG (NYSE: SI), is acquiring Diagnostic Products Corporation (NYSE: DP), a Los Angeles-based company that develops and manufactures immunodiagnostic systems and immunochemistry kits. On a trailing 12-month basis, DP generated revenue of $481 million, EBITDA of $146 million and net income of $67 million.
Under terms of the deal, SI will pay $58.80 in cash for each share of DP common stock outstanding for a total purchase price of $1.86 billion. On completion of the transaction, DP is to become a wholly owned subsidiary of Siemens Medical Solutions, USA. The deal, which is valued at 3.87x revenue and 12.7x EBITDA, offers a 21% premium to DP’s prior-day closing price.
This acquisition extends SI’s health care solutions portfolio to include a major in vitro immunodiagnostics business alongside its existing imaging business. This will effectively allow SI to enter the health care chain at an earlier stage than it currently does. Lehman Brothers served as financial advisor to DP.
The price tags of the 11 remaining deals quickly taper off, ranging from $240 million to $1.25 million. Among them we may cite Hologic’s (NASDAQ: HOLX) $240 million acquisition of Indianapolis-based Suros Surgical, a company that manufactures minimally invasive surgical technologies, focused on breast biopsy and tissue removal. In 2005, Suros generated revenue of $27.2 million, and is projected to generate $40 million for 2006.
Under terms of the agreement, Hologic will pay $132 million in cash; the remaining $108 million will be payable, at HOLX’s election, in cash, stock or a combination of the two. A two-year earnout is also contemplated.
Hologic believes that this deal will strengthen its initiative to become and remain a leader in the field of women’s health care, an ambition which may have translated into a nice premium for Suros: The deal is worth 6x 2006 projected revenue.
Not wanting to put all its eggs in one basket, Hologic made a second acquisition in April. It targeted California-based R2 Technology, a company that develops and commercializes a computer-aided detection (CAD) technology which assists radiologists in detecting breast cancer. In 2005 R2 generated revenue of about $45 million.
Under terms of the deal, Hologic will pay $220 million in shares of its common stock, which works out to about 4.9x 2005 revenue. The price may be justified, HOLX management reasons,  because this acquisition will put the company in a competitive position as the market shifts away from analog or film-based systems to CAD sold with digital mammography systems.
Bruker BioSciences (NASDAQ: BRKR) is acquiring Bruker Optics for $135 million. Bruker Optics develops and manufactures research analytical and process analysis instruments. In 2005, it generated revenue of $78.7 million, operating income of $12 million and net income of $6.3 million. This acquisition expands and diversifies BRKR’s market presence and its technology base.
Under terms of that deal, 59% of the consideration is to be paid in cash and 41% in shares of BRKR stock. Taking into account, however,  the target’s net cash of $4.3 million, the effective purchase price drops to $130.7 million, and the price to revenue multiple to 1.66x.
American Securities Capital Partners, LP, a New York-based private equity firm, is selling Miltex to Integra LifeSciences (NASDAQ: IART) for $101 million in cash.  Miltex, based in York, Pennsylvania, provides surgical and dental hand instruments; in 2005 the company generated revenue of $62 million and EBITDA of $13 million.
While the seller is cashing out on its investment, this deal, valued at 1.6x revenue and 7.8x EBITDA, is a strong strategic fit with IART’s instrument business. Miltex also gives IART a broader platform on which to grow its business, since Miltex participates in several markets, namely,  the alternate site, dental and veterinary markets.
Though a British judge turned down a legal challenge to the author of The Da Vinci Code, other plaintiffs have fared better in the U.K. courts. San Diego’s ACON Laboratories is selling its business of developing and manufacturing lateral flow immunoassays and related products in the U.K. marketplace to Inverness Medical (AMEX: IMA) for $85.05 million. IMA’s acquisition of ACON’s U.K. business was in fact negotiated after ACON and a distributor admitted infringement of one of IMA's U.K. patents covering immunoassay technology.
Under terms of the deal, consideration is to consist of $55.1 million in cash, 711,676 shares of IMA stock worth $18.75 million and $11.2 million to be made in subsequent payments. In a subsequent, related deal, IMA will acquire ABON Pharma, which owns a manufacturing facility in China, for between $140 million and $175 million.
 

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