The return of medtech scale-building?

The largest medtech deal for a year and the fourth-largest ever will see Becton Dickinson become the fifth-placed medical device maker by sales in 2022, EvaluateMedTech data show. At $24bn, its acquisition of C.R. Bard is worth more than half of BD’s market cap, and coming just two years after the $12.3bn purchase of Carefusion the deal clearly signals BD’s scale-building ambitions.

The factors that prompted the last round of medtech consolidation in 2014 have not gone away, with a shrinking customer base, particularly in the hospital sector, exerting greater pressure on device prices. And with Cardinal Health snapping up Medtronic’s medical supplies business last week, this might just be starting to look like a second wave.

The deal is only the tenth in the history of the medtech sector to be worth more than $10bn. Boston Scientific’s ill-judged $27bn takeout of Guidant was the first, in 2005.

10 at $10bn-plus: medtech's 11-figure deals
Announcement Acquirer Target Value ($bn)
Jun 15, 2014 Medtronic Covidien 49.9
Dec 5, 2005 Boston Scientific Guidant 27.0
Apr 28, 2016 Abbott Laboratories St. Jude Medical 25.0
Apr 23, 2017 Becton Dickinson C. R. Bard 24.8
Apr 27, 2011 Johnson & Johnson Synthes 19.7
Apr 24, 2014 Zimmer Biomet Biomet 14.0
May 13, 2015 Danaher Pall 13.8
Apr 15, 2013 Thermo Fisher Scientific Life Technologies 13.6
Oct 5, 2014 Becton Dickinson CareFusion 12.2
May 8, 2006 Thermo Fisher Scientific Fisher Scientific 10.6
Source:EvaluateMedTech.

Like Zimmer’s takeover of Biomet in 2014 this is a local derby: BD’s head office in New Jersey is a 40-minute drive from Bard’s HQ. And, like the two orthopaedics groups, there is technological overlap, drug delivery tech making up 51% of BD’s 2016 revenues and 21% of Bard’s. This is unlikely to be enough to raise difficulties with antitrust law.

But Bard is a jack of all – or several, at least – trades, with cardiology, urology and surgery units each making up between a fifth and a quarter of its revenues. These will, on the whole, be new areas for BD, and will be housed in a newly created third business segment, BD Interventional, alongside the pre-existing Medical and Life Sciences businesses.

C. R. Bard's businesses
Segment 2016 sales ($m) Proportion
Urology 872 26%
Drug delivery 758 21%
General & plastic surgery 724 20%
Cardiology 694 19%
Wound management 128 4%
Nephrology 81 2%
Diagnostic imaging 60 2%
Endoscopy 31 1%
Other 211 6%
Total 3,317 100%
Source: EvaluateMedTech.

As well as expanding BD’s heft in general, the deal ought to boost it in emerging markets. Bard is growing fast outside the US, and following closing the new company ought to have revenues in China, for example, of more than $1bn.

Debt

BD is funding the deal in a combination of ways, but principally by borrowing. $10bn will come from new debt, $4.5bn from equity and equity-linked securities to be issued to the market, $1.7bn from cash in hand and $8bn in BD’s common stock. Bard shareholders will own around 15% of the company after the close, expected in autumn, and the companies say the deal will be immediately accretive.

Top 5 medtech companies in 2022
Global sales ($bn) Market share
2017 2022 CAGR 2017 2022
Medtronic 30.8 37.5 +4% 7.7% 7.2%
Johnson & Johnson 28.2 34.5 +4% 7.0% 6.6%
Philips 16.6 20.2 +4% 4.1% 3.9%
Abbott Laboratories 15.2 19.2 +5% 3.8% 3.7%
Becton Dickinson (post-merger) 14.6 18.4 +4% 3.6% 3.5%
Source: EvaluateMedTech.

The challenge will be integration, particularly coming after BD spent the last two years absorbing Carefusion. But, assuming no major divestments are called for, the deal should allow BD to leapfrog Siemens to become the world’s fifth-largest medtech group in 2022. BD’s management clearly believes that this kind of scale is a prize worth having; it will be intriguing to see whether other large medtechs follow this example.

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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