The Health Care M&A Monthly: Medical Device Deals Surge--
December Saw 27 Transactions Worth $7.9 Billion
Throughout 2007 the Medical Device sector has proven itself to be one of the stalwarts of the health care M&A market. This industry generated the highest level of transactions of any sector of health care, with 191 deals, or 18% of the year’s total deal volume. It accounted for 26% of the year’s dollar volume, second only to Pharmaceuticals. It also produced 12 billion-dollar deals during the year—one per month—worth a combined total of $40.9 billion.
Thus it comes as no surprise that the Medical Device sector ended 2007 the same way it began the year, with a strong flourish. It set a blistering pace in January, when it accounted for 19% of the deal volume and 69% of the dollar volume. During December, it finished by delivering 27 deals, or 35% of the total deal volume, and $7.9 billion, or 40% of the $19.6 billion committed during the final month of the year.
In the largest deal in the health care industry for December, Royal Philips Electronics (NYSE: PHG) paid approximately $5.1 billion to acquire Respironics (NASDAQ: RESP). Based in the Netherlands, Royal Philips is a well-known conglomerate involved in consumer products, components, semiconductors, information technology, lighting, professional products, among other economic sectors. On a trailing 12-month basis, Philips generated revenue of $38.0 billion and EBITDA of $3.5 billion. The smaller Respironics, based in Murraysville, Pennsylvania, develops, manufactures and sells products and programs that service the sleep and respiratory markets in 141 countries. On a trailing 12-month basis, RESP generated revenue of $1.24 billion, EBITDA of $246.0 million and net income of $128.0 million.
Under terms of the transaction, Philips is offering to pay $66.00 in cash for each share of RESP common stock. This bid works out to 4.1x revenue and 19.3x EBITDA. It also offers RESP shareholders a 31% premium over the stock’s prior-day price. On closing, RESP is to become the centerpiece for the Philips Home Healthcare Solutions division within Philips Healthcare.
What Philips is buying with this deal is Respironics’ global leadership position in the treatment of Obstructive Sleep Apnea (OSA), as well as a leading position in noninvasive ventilation. Sleep apnea is commonly associated with such other disorders as heart disease, stroke and diabetes. All of these interrelated conditions are on the rise along with the obesity epidemic that is spreading in the developed world. This acquisition places Philips in the number one spot to treat OSA as this epidemic claims an increasingly larger percentage of the population.
Philips made a second, smaller acquisition earlier in December when it announced the purchase of VISICU (NASDAQ: EICU), a health care information technology and clinical solutions company based in Baltimore, Maryland, which provides a remote monitoring system for intensive care units, for $430.0 million in shares of its stock. Valued at 12.0x revenue and 50.0x EBITDA, this deal offers EICU shareholders a 35% premium over the stock’s prior-day price. On the other side of the equation, this acquisition adds to Philips’ suite of patient monitoring systems, making it more attractive to acute care facilities seeking to upgrade and expand their IT systems. Morgan Stanley & Co. provided EICU with advice on this deal.
The second largest deal in this sector saw the acquisition of privately held Bruker BioSpin Group by Bruker BioSciences Corp. (NASDAQ: BKBR) for $914.0 million. Bruker BioSciences designs, manufactures and markets life science systems and materials research tools based on mass spectrometry core technology platforms and X-ray technology while Bruker Biospin designs, manufactures and markets enabling life science and analytical research systems based on magnetic resonance imaging, or MRI, technology. Both are located in Billerica, Massachusetts.
Under terms of the transaction, BKBR is paying $388.0 million in cash and $526.0 million in 57.5 million shares of its common stock to buy Brucker Biospin. Based on figures annualized from the first nine months of 2007, the price to revenue multiple is 1.9x and the price to EBITDA multiple is 14.0x.
The acquisition of Bruker Biospin diversifies BKBR’s product line, with the goal of making the company more attractive to customers in search of one-stop shopping. The company that will emerge from the combination of these two is to be called Bruker Corporation.
In the third largest deal, Bristol-Myers Squibb (NYSE: BMY) is selling its medical imaging unit, one which supplies medical imaging products for nuclear and ultrasound cardiovascular diagnostic imaging procedures, to Avista Capital Partners, a New York-based private equity shop that manages $2.0 billion in private equity capital. Avista is paying $525.0 million in cash, or 0.8x revenue, to make the purchase. BMY is selling off this business unit for the purpose of plowing the proceeds back into its core pharmaceutical business. The imaging unit had a relatively small array of products, and was not likely to grow rapidly as a segment of BMY’s overall business, prompting the decision to sell. J.P. Morgan Securities provided BMY with financial advice in this transaction.
Avista also announced another sizable deal in this sector days before when it acquired the fluid management and venous access business of Boston Scientific Corporation (NYSE: BSX) for $425.0 million in cash, or 2.5x revenue. Boston Scientific had previously announced the sale of these two business lines as part of its plan to divest nonstrategic assets to concentrate on its core business.
Inverness Medical Innovations, which won our contest last month as 2007’s most active buyer, continued its winning ways in December with two acquisitions, one of which was the purchase of BBI Holdings (LSE: BBI) for $170.7 million in stock, or 8.7x revenue (the other is in the Labs, MRI & Dialysis sector, see page 6). BBI is a Welsh life sciences company that specializes in developing and manufacturing noninvasive lateral flow-based rapid diagnostic tests. Under terms of the deal, BBI shareholders are to receive 0.069 shares of IMA stock for each share of BBI they own. This transaction thus values each share of BBI stock at GBP 1.95, which represents a 25% premium to its prior-day price. The target’s lateral flow-based tests will complement IMA’s existing array of diagnostic tests.