Fortive favours the autoclave with J&J deal

J&J sells another unit.

Yet another chunk of Johnson & Johnson’s medtech operations is to be hacked off and sold. The group’s fifth multibillion-dollar device divestment since 2014 is to be that of its advanced sterilisation products business, which will be bought by Fortive – itself the product of a divestment, this time from Danaher – for $2.7bn.

The proportion of J&J’s overall revenues that comes from sales of medical devices has been shrinking steadily for the last five years. J&J has acquired other medtech businesses in that time, but it seems clear that overall it wants to focus on its drugs rather than its devices – and the Fortive deal will sharply accelerate that process.

J&J’s advanced sterilisation products are used by hospitals and other healthcare facilities to disinfect reusable surgical instruments. Guarding against hospital-acquired infections in this way is of course crucial to keeping patient care costs low.

They include cleaners, reprocessers and biocides for products such as laparoscopic and robotic surgical devices and endoscopes; more than 9,000 of its machines are installed worldwide. Crucially, a lot of its revenues are recurring, with 84% of its top line coming from consumables and services.

The advanced sterilisation unit is part of J&J’s Ethicon surgical business, and generated sales in 2017 of around $775m. But the unit is not in the best of health. In its 2017 annual report, J&J reported that its specialty surgery division saw its sales decline $77m (5.4%) from the year before, and attributed the drop in part to lower sales from the advanced sterilisation business.

Another one bites the dust

Scything off this part of its business should mean J&J’s overall growth prospects improve. And it is part of a strategy that has been in place for some time, with this divestment being the largest since that of Ortho-Clinical Diagnostics in 2014.

J&J's billion-dollar divestments
Date closed Target Acquirer Value ($bn) Focus
June 6, 2018* Advanced sterilisation, part of J&J's Ethicon unit Fortive 2.7 General and plastic surgery
March 16, 2018 Lifescan, part of J&J's diabetes unit Platinum Equity 2.1 Diabetic care
October 2, 2017 Codman Neurosurgery Integra   LifeSciences 1.0 General and plastic surgery
October 4, 2015 Cordis Cardinal   Health 1.9 Cardiology
June 30, 2014 Ortho-Clinical Diagnostics The Carlyle Group  4.2 In vitro diagnostics 
*Date announced. Source: EvaluateMedTech.

J&J has been rumoured to be shopping the sterilisation unit around since the start of this year, and it is rather interesting that Fortive has ended up making a bid. The group was formed when Danaher, a diversified conglomerate, spun out some of the non-healthcare parts of its business in 2016.

Since then Fortive’s technology has mainly encompassed workplace safety instrumentation and industrial technologies, including high-tech equipment, components, software and services which it sells to the manufacturing, transportation and repair markets. This move could be interpreted as Fortive getting back into healthcare.

Fortive has submitted a binding offer of $2.7bn in cash for the unit. If J&J accepts the offer, which is highly likely, the deal will close in 2019.

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow @LizVantage on Twitter

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