The second biggest medtech acquisition of the year is on the cards if the gossip on Wall Street is to be believed. Bausch + Lomb’s majority owner, Warburg Pincus, has hired Goldman Sachs, according to those ever-present anonymous sources, and is seeking up to $10bn for the ophthalmic specialist.
Bausch, which has been building its drug pipeline up for a while now, not least through its acquisition of Ista in March, has had “informal expressions of interest” from large healthcare companies, the rumour runs. With the ophthalmology sector growing nicely, Bausch + Lomb looks eminently buyable, though whether it is worth eight figures is debatable.
More than just contacts
A sale would make sense for Warburg Pincus, which took Bausch + Lomb private for $3.7bn back in 2007, when Bausch was suffering the effects of a product recall and accounting errors that had forced a restatement of earnings. Five years is a typical time between a private equity firm buying and selling a company, given the likely need otherwise to refinance or roll over loans raised to complete the initial purchase.
Bausch + Lomb has done well as a private concern. In 2011, sales rose 11% to $2.8bn, aided by diversification from its core of contact lenses and ophthalmic surgical devices into pharmaceuticals. Buying Ista allowed it to double the number of mid-to late-stage ophthalmic drugs in its pipeline (Bausch + Lomb's move on Ista points to further eye care consolidation, March 28, 2012).
A $10bn price tag would therefore represent a chunky sales multiple of over 3.5x, although this might be justified if the business is highly profitable and growing. If Warburg does manage to rake in the full $10bn the deal would be the largest private equity exit since Takeda’s purchase of Nycomed last year for €9.6bn (Takeda confirms defensive course in Nycomed buy, May 19, 2011). With such potential for a tidy profit it is unsurprising that Warburg Pincus has put feelers out.
Even if the feelers find nothing of interest, there is a payday ahead for Bausch’s owners. An IPO has long been considered a possibility for Bausch + Lomb, and it appears that floating is plan B. “Bausch & Lomb is regularly contacted by companies with strategic interest in our company, and we continue to aspire to a return to the public markets in the future,” Bausch + Lomb said yesterday.
Names being bandied about as buyers include Sanofi, Bayer, Pfizer, GlaxoSmithKline, Merck & Co and Abbott.
Its current main competitors, Novartis and Johnson & Johnson, are already established in many of Bausch’s markets, and might face antitrust issues and have to divest Bausch & Lomb's contact lens business to complete a purchase.
Sanofi has a track record in ophthalmology acquisitions, having bought the French biotech Fovea in 2009; GSK’s acquisition of Inspire in 2010 is another case in point. But the recent trend for pharma companies to sell off device-based operations could militate against a pure-pharma purchaser. Likewise, with Abbott’s bisection into a device-only company and the new pharma-focused entity AbbVie less than three weeks away, buying Bausch + Lomb makes little sense.
GlaxoSmithKline might be a better bet. There is synergy with the over-the-counter businesses of the two companies as well as pharma, and GSK is less averse to diversifying its healthcare business.
Bausch + Lomb has an interesting drug pipeline and is active in a market many firms are keen to get into. But with fingers in many pies, it is a tricky prospect for many of those spoken of as buyers. For it to be worth $10bn the fit would have to be precise.