Healthineers makes its ambition plain with $16.4bn Varian buy

Suddenly 2020’s medtech M&A landscape looks very different.

Not content with being the largest group in medical imaging, Siemens Healthineers is now on course to become the leader in radiotherapy, too. Its acquisition of Varian Medical Systems for $16.4bn in cash is the biggest healthcare deal of 2020, and a bold move at a time of investor apprehension about procedure volumes in the near future.

But cancer treatment is still an urgent need, and despite the pandemic knocking Varian’s sales in its most recent quarter, the company’s revenues are forecast to grow at an impressive 8% per year out to 2026, according to EvaluateMedTech. And the deal might trigger defensive moves from other groups, with some industry watchers speculating that Philips might buy Varian’s main competitor, the Swedish group Elekta.

Healthineers currently has little presence in cancer treatment, though it formed a partnership with Varian called EnVision, centred on image-guided radiotherapy and radiosurgery, in 2012. Acquiring the company will net Healthineers a 52% market share in radiology.

Varian’s tech, which includes external beam radiation therapy, radiosurgery, proton beam therapy, brachytherapy and embolic microspheres, meshes well with Healthineers’ imaging unit and its other major strength, in vitro diagnostics. These three sectors are the major areas of capital spend for hospitals, according to analysts from Berenberg. Healthineers is already the global leader in imaging and the number four player in diagnostics, EvaluateMedTech’s consensus data shows.  

Radiotherapy is likely to play an increased role in the growing need for cancer care, particularly as emerging markets open up. Ageing populations and the westernisation of developing markets are driving cancer incidence higher, fuelling demand. Morningstar analysts estimate that emerging markets can support twice as many radiology platforms as they have now without approaching the developed world’s number of systems.

More consolidation? 

At $177.50 per share the deal comes in at a 24% premium to Friday’s close. Siemens, which currently owns around 85% of Healthineers, will provide it with a €15.2bn bridge facility to help finance the deal. Healthineers plans to replace up to half that amount by issuing new equity, with the rest funded by debt provided by Siemens or one of its subsidiaries. Siemens said its stake in Healthineers would be diluted to roughly 72%, granting the spinout more autonomy. 

Healthineers will have to deliver on its stated expectation of $300m in annual cost and revenue synergies for the deal to become value-accretive, as it says it will within a year. When the deal closes – expected in the first half of 2021 – the company will be an appealing supplier to hospitals that wish to limit the number of partners with whom they must deal. 

These arguments do not only apply to Healthineers and Varian. Philips and Elekta, which also have a partnership that dates to 2012, this time to combine radiation therapy and MRI technology, might well also see the virtues of combining. If this does occur, however, Philips will still trail Healthineers significantly in the radiology market: EvaluateMedTech’s sellside consensus puts Elekta’s 2026 sales at less than a third of Varian’s.

Siemens Healthineers: No 1 in imaging… and radiotherapy?
  WW annual sales ($m)  
Top 3 in diagnostic imaging 2019 2026e CAGR
Siemens Healthineers 10,006 13,721 +5%
Philips 8,750 12,036 +5%
General Electric 9,158 8,548 -1%
Top 3 in radiology 2019 2026e CAGR
Varian Medical Systems 1,642 2,675 +7%
Elekta 730 816 +2%
Accuray 175 330 +9%
Source: EvaluateMedTech.

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