Well, there it is. After the spinout of Siemens’s Healthineers business via an IPO and J&J’s death by a thousand cuts, General Electric has finally bitten the bullet and decided to spin out its own healthcare business.
The conglomerate’s plan to split was welcomed by shareholders, who pushed the stock up 8% in early trading. Given that the group wants to sell 20% of GE Healthcare and use the proceeds to cut its own debt, as well as loading the new company with $18bn of liabilities, investors’ delight is well founded. But how will the newly independent GE Healthcare fare?
GE has had a pretty rotten time over the past year, shedding half its value and cutting dividends; the icing on the cake was its removal from the Dow Jones Industrial Average, announced last week. The need for drastic action has been apparent for some time, and the muted reaction to the $1bn sale of its value-based care division to Veritas Capital suggested that shareholders were angling for the wholesale divestment of Healthcare (Twilight of the medtech conglomerates, April 3, 2018).
The split will not be quite as clean as that of Healthineers from Siemens. The current plan is for GE first to sell a fifth of GE Healthcare, and later allot the remaining 80% to GE shareholders tax-free. This is expected to take 12 to 18 months. But things might change, as is often the case with this sort of move.
“The 80-20 is a marker right now for the path we could go down,” GE’s chief executive, John Flannery, said on a conference call today. “We’re going to look at all the opportunities, obviously, about the sequence, timing, spin, split … the core message for investors is it’s a source of financial resource to the parent company, and our investors are going to end up owning directly a standalone, well-capitalised company.”
From sloth to growth?
The performance of GE’s various units varies widely, but Healthcare has been doing fairly well. GE Healthcare’s revenues last year were $19bn, $10.2bn of which, according to EvaluateMedTech, came from medical technology. The rest was made up of the products and services GE offers to the biopharmaceutical industry for drug discovery and research into cellular and gene therapy technologies. It also includes imaging agents, which are regulated as drugs.
The company’s medtech sales specifically have grown by 4% annually for the last two years, EvaluateMedTech data show, but the growth rate has been forecast to shrink slightly, to 3% annually, out to 2024. To hear management tell it, once GE Healthcare is independent this growth rate will pick up.
|General Electric's medtech acquisitions, 2013-18|
|Mar 13, 2017||Monica Healthcare||Obstetrics & gynaecology|
|Dec 31, 2016||Omnyx||In vitro diagnostics|
|Jul 13, 2016||Biosafe||Blood|
|Apr 15, 2014||CHCA Computer Systems||Healthcare IT|
|Aug 6, 2013||Omnimed||Cardiology; patient monitoring|
|Jun 21, 2013||Mammography business of Vatech||Diagnostic imaging|
|May 29, 2013||Transactional business of Unisyn Medical Technologies||Diagnostic imaging|
It might be more likely to expand inorganically. GE has done just seven acquisitions in the medtech arena over the past five years, and has not disclosed the price of any, suggesting that these were small bolt-on deals. An independent GE Healthcare would be either a “leaner, tougher and smarter” competitor to, or a potential acquirer of, companies including Thermo Fisher and Danaher, analysts from Janney wrote.
They added that another target could be Bio-Techne, which yesterday did an acquisition of its own, buying the liquid biopsy developer Exosome Diagnostics for $250m in cash.
In fact, GE will have to make a sizeable strategic move if it is to become the American equivalent of Healthineers. A comparison of the forecast medtech-only revenues of the two groups shows the German company holding steady with medtech sales nearly twice those of GE Healthcare, though their forecast long-term growth remains similar.
|GE Healthcare vs Siemens Healthineers – medtech sales only ($bn)|
|% growth y-o-y||4%||4%||4%||3%||3%||3%||3%||3%||3%|
|% growth y-o-y||1%||2%||11%||6%||4%||3%||3%||3%||3%|