In the January 2007
issue:
Health Care M&A Results For 2006 - A Record Year
By The Numbers
Nearly 1,000 mergers and acquisitions were announced in the health care
industry during 2006. The $260.7 billion committed to fund this activity
represents a 59% increase over the previous record high posted in 2004.
...
The Orthopedics M&A Market - Will Smith &
Nephew Ultimately Join Forces With Biomet?
Smith & Nephew lost Biomet to a private equity group for $10.9 billion. Will
it become the next acquisition target? Read inside for the pros and cons.
...
Q4:06 Dealmaking
The fourth quarter of 2006 saw 226 deals. Based on revealed prices, a total
of $75.8 billion was committed to finance them.
...
In The Departments
Services
-
Health Care Services
-
Deal Summaries
-
Additional Transactions
-
Transaction Updates
Technology
-
Health Care Technology
-
Deal Summaries
Additional Transactions
-
Transaction Updates
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Articles Archive
Companies Mentioned in this issue:
January 2007
A
Advanced Pediatric Care p4
AIG Altaris Health Partners p8
Altus Pharmaceuticals p11
Ascension Health p4
B
B.A. Healthcare, LLC p8
BA Venture Partners p8
Banc of America Securities p7, p15
Barr p16
Biomet, Inc. p1
Blackstone Group p10
Bon Secours Health Care System p4
Bristol-Myers Squibb p11
Brookdale Senior Living p7
C
Canaccord Adams, Inc. p11
Caremark Rx p3
Caritas Christi Health System p4
Carnegie Mellon University p11
Catholic Health East p4
Centene Corp. p8
Centerpulse p1
Cerexa p15
Cipla p16
Citigroup p9
Citigroup Global Markets p4
Cohen & Steers Capital Advisors p7
Concuity p11
Coventry Health Care p8
Credit Suisse p9
CVS p3
D
Disc-O-Tech Medical Technologies Ltd. p15
Domantis p10
Dynamic Healthcare Solutions p8
E
Exelixis p11
Express Scripts p8
F
FirstGuard Health Plan Missouri p8
Forest Laboratories p15
Fortress Investment Group p4
G
Genetech p11
Genmab A/S p10
Getinge AB p11
GlaxoSmithKline p10
Goldman, Sachs & Co. p7
Goldman Sachs Capital Partners p10
H
HCA p3
HealthWorks p8
Holiday Retirement Corp. p7
Horizon Health Corp. p4
Hoya Corp. p15
Huntleigh Technology p15
I
Indevus Pharmaceuticals p16
J
J.P. Morgan p15
Johnson & Johnson p10
K
Kohlberg Kravis Roberts & Co. p10
Kyphon p15
L
Lonestar Healthcare p8
Lupin Ltd. p16
M
Medco Health Solutions p9
Merck KGaA p16
Merrill Lynch & Co. p4
Missouri Care p7
Morgan Stanley p1
N
Nationwide Health Properties p7
Needham & Company, LLC p8
Nomura Code Securities p10
Novartis p16
O
Olympus p15
On Assignment p8
Osteobiologics p10
P
Partners HealthCare p4
Pediatric Services of America p4
Pentax Corp. p15
Peptech, Ltd. p10
Pfizer p3
Plethico Pharmaceuticals, Ltd. p16
Post Acute Medical, LLC p8
Praecis Pharmaceuticals p11
Psychiatric Solutions p4
R
Ranbaxy Laboratories p16
Richland Ventures p8
S
Salix Ventures p8
Sandoz p16
sanofi-aventis p16
Scancell, Ltd. p10
Schaller Anderson p7
Serono, S.A. p16
Silver Point Finance, LLC p8
Smith & Nephew p1
Southern Home Medical Equipment p4
St. Francis Medical Technologies p15
St. Mary Hospital p4
Stryker Corp. p10
Swope Community Enterprises p8
T
Takeda Pharmaceutical Co. p16
Teva p16
Three Arch Partners p8
TPG p10
Trintech Group p11
U
UBS p15
University of Missouri Health Care p7
V
Valera Pharmaceuticals p16
Vibra Healthcare, LLC p8
VISTA Staffing Solutions p8
W
Warm Springs Hospital System p8
WellPoint p8
Z
Zimmer Holdings p1 |
The Orthopedics M&A Market - Will Smith &
Nephew Ultimately Join Forces With Biomet?
Email Editor
Rumors swirled in early December
that medical device maker Smith & Nephew (NYSE: SNN) was preparing
an $11.0 billion bid for rival Biomet, Inc. (NASDAQ: BMET). We now
know that BMET was in play, but that it was ultimately snapped up for
$10.9 billion by a consortium of private equity firms. This is the second
time in three years that SNN was out-maneuvered: it courted Centerpulse
in 2003 only to lose the Swiss orthopedics firm to Zimmer Holdings
(NYSE: ZMH) for $3.2 billion. The loss of two big deals makes us wonder
whether SNN’s role in the M&A market will now change from a (potential)
buyer to a target.
Let’s first take a look at the
players and winning combination. Based in Warsaw, Indiana, Biomet is a
medical device company whose focus is orthopedics: it designs,
manufactures and markets products for musculoskeletal medical specialists
in surgical and nonsurgical therapy. On a trailing 12-month basis, BMET
generated revenue of $2.05 billion, EBITDA of $700 million and net income
of $409 million.
Under competitive
pressure from giants in the orthopedics industry (names are named below),
the company engaged Morgan Stanley earlier in 2006 to help it
explore strategic alternatives. Bidders included both strategic and
financial buyers. Among the former, SNN was a natural choice. Based in
London, England, SNN develops, manufactures and markets tissue repair
products, primarily in the areas of bone, joints, skin and other soft
tissue. On a trailing 12-month basis, SNN generated revenue of $2.54
billion, EBITDA of $633 million and net income of $320 million. As its
recent $72.3 million acquisition of Texas-based Osteobiologics
shows, SNN is eager to expand operations in the United States. The
acquisition of BMET would have given SNN a secure footing in the U.S.
market, and the size to compete more effectively in the orthopedic devices
industry.
But, alas for
SNN, in the end BMET went to a set of financial buyers that includes such
notables as The Blackstone Group, Goldman Sachs Capital Partners,
Kohlberg Kravis Roberts & Co. and TPG. The consortium
offered to pay $44.00 in cash for BMET, to be financed through a
combination of debt and equity. This deal, valued at 5.3x revenue and
15.6x EBITDA, offered BMET shareholders a 27% premium over the stock’s
prior-day price. Even though slightly lower than the $11.0 billion SNN was
rumored to have offered, we assume the private equity bid won because of
the ready cash it offered, as against the cash and stock combination that
SNN would most likely have put together.
Interestingly, when news broke that the private equity consortium won the
deal, SNN’s stock rose by as much as 7%. Maybe shareholders were just
relieved that SNN wasn’t going to become so highly leveraged, but the jump
also appears to have been driven in part by the speculation that SNN might
itself become an acquisition target of the very same private equity group
that acquired BMET. We know that venture capital firms often acquire two
or more similar companies with the express purpose of combining their
businesses; although doing so on this scale is somewhat less common for
private equity firms, the market is teeming with cash chasing after
investments. Operationally, privatizing and combining SNN and BMET would
allow for a more rapid integration, without the pressure of being held
accountable to two historically different sets of shareholders. The
possible combination of SNN and BMET would create a firm better able to
compete with the three giants in the field, Johnson & Johnson
(NYSE: JNJ), Stryker Corp. (NYSE: SYK) and Zimmer Holdings.
Analysts as
Nomura Code Securities were sanguine about such a deal, downgrading
their recommendations on SNN shares from "buy" to "neutral," indicating
the shares were almost fully valued. The crux of the matter, they believe,
is that the upside from a rumored acquisition is not enough to balance the
risk that a deal does not occur. Still, the pressures driving both BMET
and SNN to seek a larger market share remain in play, so in the end it may
matter less whether the two join forces under their own steam or through
the auspices of a financial buyer. Speculation? Yes, but one worth
considering. |
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