Philips sells the household goods and could spend on tech instead

Digital health is a core focus for Philips. Might more acquisitions be on the way?

Corporate strategy

In an effort to sharpen its focus on medical and healthcare technology yet further, Philips is to divest its domestic appliances business. It could take a couple of years to get shot of the unit, but the company will then find itself with upwards of €3bn ($3.3bn) it can use for investment – either within its own business or for acquisitions.

Philips has not said how it intends to divest the unit, which makes domestic goods including irons and coffee machines, but it will go the way of the Dutch group’s audiovisual, lighting and other non-medtech businesses, which have been sold off or spun out one after another over the past seven years.

The domestic appliances unit generated €2.3bn in sales in 2019, around 12% of Philips’s total sales. For the graph below, 2019 sales figures are actual; figures for subsequent years are consensus forecasts from EvaluateMedtech.

Even once sold or floated, the unit will still provide Philips with a revenue stream. Speaking on the earnings call yesterday, chief executive Frans van Houten said that it would put in place a brand license agreement with the unit’s new owners that it could then renew “if the performance is there”.

Various equity analysts have suggest potential price tags for the domestic appliances business of between €2.7bn and €3.6bn. Philips expects “a strong interest” from potential buyers, Mr van Houten said.

Spending

So what might Philips do with its windfall? The company has eased off the pedal when it comes to M&A over the past year, doing only three deals versus five in 2018 and seven the year before that. But a look at what it has bought shows how tightly it is centred on telehealth and other information technologies. Indeed, this has been a key focus for the company for some time (Philips uses its intelligence for outcomes-based incomes, April 25, 2018). 

Philips's recent acquisitions
Date Target Technology
Aug 2019 Healthcare Information Systems business of Carestream Health Cloud-based imaging platform 
Jun 2019 Medumo Diagnostic patient management platform
Mar 2019 Teleradiology business of Direct Radiology Teleradiology viewing and reporting capabilities
Sep 2018 Blue Willow Systems Cloud-based senior living community resident safety platform
Aug 2018 Xhale Next-generation sensor technologies
Jul 2018 EPD Solutions* Image-guided procedures for cardiac arrhythmias
Jun 2018 Remote Diagnostic Technologies Pre-hospital monitoring, cardiac therapy and data management
May 2018 Nightbalance Device for positional obstructive sleep apnoea
Note: *financial terms undisclosed except for EPD Solutions, acquired for €250m cash.
Source: EvaluateMedTech and company website.

It would be logical for Philips to put some of the cash towards doing more of these deals. It is hard to say whom it might wish to buy; it specialises in smallish tuck-in deals, mainly of private companies, and its next targets might well still be in stealth mode. 

Perhaps one clue might come from its venture investments and partnerships. Philips is far from a prolific corporate VC, though it did back Corindus Vascular Robotics in 2017 which must have made it a tidy profit two years later

The other groups it has backed include Common Sensing, which is developing connected systems for managing diabetes. It also has partnerships with computational pathology company Paige, to bring clinical-grade artificial intelligence to pathology laboratories, and with Nuance Communications, to develop artificial intelligence-based image interpretation technologies for use by radiologists. 

Philips sees great potential in artificial intelligence. Last month the leader of its precision diagnosis operations, Robert Cascella, wrote a blog post in which he set out the advantages he believes this tech can have in the radiology sphere. Vizai, whose software uses machine learning to identify suspected strokes on CT scans, could be in this sweet spot, though it already has a partnership with Medtronic. 

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