Almost all of the big diversified groups active in medtech are sharpening their focus in the hope of recognising more of the value of their medical device businesses. They are, however, taking different routes to do it.
Where Siemens spun off its health segment via an IPO and Philips sold its non-medtech operations to become pure-play, GE Healthcare, the medtech division of General Electric, is following Johnson & Johnson’s lead in selling a unit to private equity. And, at $1.05bn, the sale of GE Healthcare’s value-based care division to Veritas Capital is the fifth biggest private equity deal in the last five years (see table below).
The value-based care division is made up of three businesses: enterprise financial management, ambulatory care management and workforce management. These units develop and sell software intended to help healthcare organisations track payments, patient care and staffing with the aim of lowering costs.
The deal is the first move in General Electric’s company-wide initiative to sell off $20bn of assets in a bid to improve its financial performance. As well as its sluggish share price the company has had a bit of a cash flow problem which means the all-cash Veritas deal will be most welcome. General Electric plans to divest much bigger non-healthcare segments such as the businesses that make light bulbs and trains.
In general terms this strategy seems to have investors’ approval, but shareholders were not overly delighted with this particular deal: General Electric’s stock closed down 3% yesterday.
Perhaps shareholders are waiting for a wholesale breakup of General Electric, with GE Healthcare being split off in its entirety.
According to RBC analysts, General Electric’s CEO John Flannery – who previously led GE Healthcare – has stated that a deeper separation might be possible via a process whereby the company first spins off or sells a minority stake in GE Healthcare before exiting its remaining ownership in large pieces over subsequent years.
If this is the endgame, General Electric would be following the path set by J&J, which has sold off its device businesses piece by piece over the years, rather than Siemens’ example, where healthcare became a semi-detached business via the largest-ever healthcare IPO. This is hardly surprising given that GE Healthcare is bigger than Siemens Healthineers, with 2017 sales of $19bn compared with less than $14bn for Healthineers.
J&J, by contrast, has sold off seven device businesses in the past four years, two of which fell to private equity. Last month Platinum Equity paid $2.1bn for J&J’s Lifescan unit, which makes blood glucose monitors.
Taken together, the various divestments and spin-outs by General Electric, Siemens, J&J and Philips suggest that the age of vast, diversified companies that count medical devices as simply one of their many disparate interests seems to be drawing to a close. These groups appear to be realising that they are stretched too thin, and that medtech businesses stand a better chance of thriving if they stand alone, rather than being lost among lighting, aviation and industrial processes.
|Top 5 private equity buyouts of the last five years|
|Date closed||Acquirer||Target||Value ($bn)||Focus|
|June 30, 2014||The Carlyle Group||Ortho-Clinical Diagnostics, subsidiary of Johnson & Johnson||4.2||In vitro diagnostics|
|January 15, 2015||EQT Partners||Audiology Solutions business of Siemens (since renamed Sivantos)||2.7||Ear, nose & throat|
|March 16, 2018||Platinum Equity||Lifescan, part of J&J's diabetes unit||2.1||Diabetic care|
|September 4, 2013||Cinven||Ceramtec||2.0||Orthopaedics|
|April 2, 2018||Veritas Capital||Value-based care business of GE Healthcare||1.1||Healthcare IT|