The Health Care M&A Monthly: Medical Devices Set Strong Pace -
Sector Leads Robust Consolidation In 2007
The Medical Device sector posted a total of 14 deals during January, representing 17% of the month’s M&A deal volume. However, the sector attracted a disproportionate share of M&A dollars, $19.3 billion, or 69% of January’s health care M&A funds. Four transactions were billion-dollar deals.
In the largest deal of the month, Abbott (NYSE: ABT) is selling two of its four diagnostic divisions to GE Healthcare (NYSE: GE) for $8.13 billion. Abbot is divesting its in vitro diagnostic and point-of-care diagnostic business divisions, but will retain its molecular diagnostic and diabetes care units. The in vitro diagnostics unit provides immunoassays and blood screening for such diseases as HIV, hepatitis, cancer, heart failure and others; the point-of-care business provides products for blood analysis by health care professionals at the point of care. This acquisition strengthens GE Healthcare’s health care technology business. The transaction is valued at 3.0x revenue.
In the second-largest deal, private equity firm Apax Partners is selling Molnlycke Health Care Group, a Swedish device company, to Investor AB and Morgan Stanley Principal Investments, two private equity firms for $3.7 billion (€2.85 billion). Molnlycke management will be minority shareholders. The price to revenue multiple for this transaction is 3.75x.
Molnlycke makes wound care and surgical products primarily for the professional health care sector. Through a series of investments it made in 2004 and 2005, Apax Partners bought and combined the businesses of SSL International’s wound care business, Regent Medical’s surgical gloves business and Molnlycke. Apax paid a combined €1.3 billion for all three.
Other bidders for Molnlycke in the current transaction included The Blackstone Group and Clayton, Dubilier & Rice. The current buyers have received a binding credit commitment for the debt financing arranged by HSBC Bank, Morgan Stanley Bank International and SEB Merchant Banking.
Following through on its intention stated in November, Cardinal Health (NYSE: CAH) is selling its Pharmaceutical Technologies and Services (PTS) segment, to The Blackstone Group, one very busy private equity firm, for $3.3 billion in cash, or 1.8x revenue. PTS provides contract manufacturing, development and packaging services to the pharma and biotech industries at 30 facilities worldwide. CAH will retain Martindale and Beckloff Associates, two businesses that support the generic pharma market. The company plans to use the proceeds from the sale to accelerate its stock buyback program.
Onex (TSX: OCX), the Canadian conglomerate, is buying Kodak’s (NYSE: EK) health group, which is engaged in information technology, molecular imaging systems, and medical and dental imaging. The price is $2.55 billion, or 1.0x revenue. This divestment supports EK’s decision to concentrate its strategic focus on consumer and professional images and the graphic communications industry. Due to tax-loss carryforwards, EK is expected to retain the vast majority of the cash proceeds from this sale. Under terms of the deal, $2.35 billion will be paid in cash and as much as $200.0 million in milestone payments. If OCX realizes an internal rate of return in excess of 25% on its investment, EK will receive payment equal to 25% of the excess return, up to $200.0 million.
The next largest deal brings together two competitors. Advanced Medical Optics (NYSE: EYE) is paying $808.0 million in cash for IntraLase (NASDAQ: ILSE), which designs, develops and manufactures ultra-fast laser products for vision correction. This transaction, valued at 6.6x revenue, gives EYE its rival’s blade-free technology, helping to establish it as a global leader in refractive technology. EYE currently holds a 60% market share of the Lasik vision correction market.
The deal offers ILSE shareholders a 12.5% premium over the stock’s prior-day closing price. It had been anticipated because ILSE’s femtosecond laser technology is becoming the standard of care for creating a corneal flap in Lasik surgery. UBS Investment Bank and Goldman Sachs provided financial advice to EYE; Bank of America and JP Morgan provided financial advice to ILSE.
MDS (NYSE: MDZ), the life sciences company, is acquiring Molecular Devices Corp. (NASDAQ: MDCC) for $615.0 million. MDCC provides bioanalytical measurement systems for drug discovery and other life sciences research. This transaction, valued at 3.3x revenue, expands MDZ’s global position as a provider of life science solutions. It also offers MDCC shareholders a 48.7% premium to the stock’s prior-day trading price. The buyer will create a new business unit that combines MDCC and MDZ's exisiting MDS Sciex division.
Moog (NYSE: MOG.A) is acquiring ZEVEX International (NASDAQ: ZVXI) for $83.8 million in cash. ZVXI distributes pumps and sets that are used to deliver enteral feeding for hospital, nursing home and patient home use. This deal, valued at 2.1x revenue, expands Moog’s home health supply business, annual sales of which are expected to rise to $65.0 million. The purchase price represents a 36% premium to the average trading price of the target’s stock over the past 30 days.
Medtronic (NYSE: MDT) is on the prowl for deals, actively looking outside the United States. The Asia-Pacific region, particularly Japan and China, seems to represent its biggest opportunity for foreign markets. Even so, MDT announced one small domestic deal during January. It is paying up to $41.0 million for certain manufacturing assets for the production of patented ENT sheath products used in ENT procedures from Massachusetts-based Vision Sciences (NASDAQ: VSCI). As part of this transaction, MDT now has the right to distribute, market and sell EndoSheath products on a worldwide basis.
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