The Cooper Companies puts lid on medtech M&A's extraordinary first half

The last six months has been unprecedented in terms of medtech companies joining forces, having witnessed the single biggest deal the space has ever seen. And the period did not end quietly: the last day of the first half of 2014 saw the announcement of yet another billion-dollar merger – the fifth this year.

Shares in The Cooper Companies, which is active in ophthalmology and surgery, jumped 8% on the news that it was to acquire the contact lens specialist Sauflon Pharmaceuticals. At $1.2bn the deal is the fifth largest this year (see tables). Though it is some way behind the largest, Medtronic’s $43bn takeout of Covidien, it is still indicative of a truly astonishing period of consolidation.

In fact the buyout bonanza may have driven The Cooper Companies to overspend: the price is almost six times Sauflon’s expected 2014 sales of $210m. But the group is buying some cutting-edge technology – Sauflon is a pioneer in silicone hydrogel lenses – and if the smaller firm’s sales hit the forecast it will have grown at a rate of 22% on the previous year.

A moment of clariti

Sauflon’s flagship is its clariti brand of daily disposable contact lenses, launched in May. The range includes sphere, toric, and multifocal lenses, enabling a wide range of patients to be reached. Sales of the clariti line are expected to grow 43% to $85m this fiscal year.

Putting this together with Cooper’s MyDay lens range, launch of which is expected next year, will enable the merged company to offer both affordable (clariti) and high-end (MyDay) products. Silicone hydrogel lenses can sell for around 20% more than standard ones, which are made of a material called polymacon, and their penetration into the US market is about half that of Europe or Japan. It might be hasty to assume that the U.S. market will quickly move to parity, but the incremental growth potential is still meaningful for Cooper.

Sauflon has around 2% of the contact lens market. Adding these points to Cooper’s current share will give the new firm 21% of the worldwide market, behind Johnson & Johnson (39%) and Novartis’s Alcon (24%), according to EvaluateMedTech. The transaction should close in the autumn and is expected to be accretive to 2015 earnings per share.

Analysts at BMO Capital Markets wrote that the deal could be more about top-line acceleration than operating cost synergies.

But, as with Medtronic/Covidien, Cooper’s rationale is also to do with putting non-US cash to use. Sauflon is based in Twickenham, UK, and the $400m or so Cooper has offshore will be put towards the price. The remaining $800m will come via existing lines of debt; the firm has a $1bn credit facility at Libor plus 0.75 basis points.

At this rate US buyers are going to run out of UK and Ireland-domiciled medtech and pharma companies to buy. Smith & Nephew is starting to look increasingly isolated, with both Stryker and Medtronic backing off; surely it cannot stay alone for much longer (Why Medtronic is a better fit than Stryker for Smith & Nephew, June 5, 2014).

Be that as it may, many will be wondering which European company will be the next to fall. Chances are they will not have long to wait to find out.

Five biggest medtech deals in the first half of 2014
Date announced Acquirer Target Status Value ($bn)
June 15, 2014 Medtronic Covidien Open 42.9
April 24, 2014 Zimmer Biomet Open 13.4
January 16, 2014 Carlyle Group Ortho-Clinical Diagnostics business of Johnson & Johnson Closed 4.2
February 3, 2014 Smith & Nephew ArthroCare Closed 1.5
June 30, 2014 The Cooper Companies Sauflon Pharmaceuticals Open 1.2
Five biggest medtech deals in the first half of 2013
April 15, 2013 Thermo Fisher Scientific Life Technologies Closed 13.6
May 27, 2013 Valeant Pharmaceuticals International Bausch + Lomb Closed 8.7
April 29, 2013 Bayer Conceptus Closed 1.1
January 17, 2013 Stryker Trauson Closed 0.76
January 7, 2013 Illumina Verinata Health Closed 0.45

To contact the writer of this story email Elizabeth Cairns in London at or follow @LizEPVantage on Twitter

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