Finally, a medtech megamerger. Or is it? Danaher’s acquisition of Pall for $13.8bn is certainly the largest buy the sector has seen this year, but with just 8% of Pall’s revenues coming from medical devices it can hardly be described as a medtech specialist.
Nevertheless it is the medtech angle that provides Danaher’s rationale for the move (see table below). Dental and diagnostics technologies account for around 40% of the firm’s revenue, with the rest being industrial and consumer products. But it is to split in two, hiving its non-medtech activities into a separate company. Pall will be folded into the new, smaller, but much more healthcare-focused, Danaher.
Currently, Danaher has five business segments, as summarised below, and it reported combined sales of $19.9bn in 2014.
|Danaher's 2014 revenue split|
|Segment||Proportion of sales|
|Life Sciences & Diagnostics||36%|
|Test & Measurement||17%|
The Test & Measurement segment plus most of Environmental and Industrial Technologies will be hived off into a new public company that Danaher says will be capable of “tremendous free cash flow generation”. The businesses that will make up this new group brought in around $6bn in revenues in fiscal 2014.
The other, largely life science-based, company will retain the Danaher name. This will include Pall as well as the existing Life Sciences & Diagnostics and Dental segments, plus units called Water Quality and Product Identification. Water Quality currently comes under Danaher’s Environmental segment, and Product Identification is part of Industrial Technologies.
Danaher says the businesses that will make up the new version of Danaher generated about $16.5bn last year. It is including Pall’s revenues in this calculation as this is where that company will end up.
Pall is a fluid management company which sells filtration and purification systems to pharma companies, brewers and municipal water suppliers. It is a medtech company by virtue of its blood filtration products, which will mesh with Danaher’s Life Sciences segment. But the lion’s share of its sales come from non-medical operations mainly focused on water filtration, which naturally will bolster Danaher’s Water Quality unit.
Danaher’s offer of $127.20 a share represents a 28% premium to Pall’s share price before the deal was announced. Danaher will pay $3bn in cash and $5bn in commercial paper, and will obtain a long-term loan for the remainder.
The group is one of the more acquisitive medtech companies, having bought four companies last year, the largest of which was the dental specialist Nobel Biocare (Danaher gets its teeth into Nobel, September 15, 2014). Since the beginning of 2010 Danaher has acquired no fewer than 16 companies or business units.
The Pall deal is a startling outlier among those struck so far this year in the medical device industry. At this point last year the top five mergers were worth a total of $20.3bn, whereas the top five of 2015 are worth less than a quarter of that.
2015 is shaping up to be a quiet year for M&A – perhaps unsurprising in light of 2014’s fireworks. And even though Danaher has signed up for the biggest buy so far this year, it will still end up smaller overall.
|Top five medtech mergers of 2015 to date|
|Date announced||Acquirer||Target||Status||Value ($m)|
|May 13, 2015||Danaher||Pall||Open||13,800|
|March 2, 2015||Cardinal Health||Cordis business of Johnson & Johnson||Open||1,944|
|March 2, 2015||Boston Scientific||Men's Health and Prostate Health businesses of American Medical Systems||Open||1,650|
|March 30, 2015||Fujifilm Holdings||Cellular Dynamics International||Closed||307|
|February 5, 2015||Thermo Fisher Scientific||Advanced Scientifics||Closed||300|