$6 Billion Blockbuster Deal to Take Kinetic Concepts Private
That’s one whopper of a buyout, eh?
Two leading Canadian pension funds and London, England-based private equity firm Apax Capital have joined forces to acquire Kinetic Concepts Inc. (KCI), putting to rest rumors that began swirling in early July.
At $68.50 a share, the buyout price is a premium of 6 percent to Kinetic Concepts’ closing price on Tuesday, July 12, before the deal was announced. That comes on top of the stock’s 13 percent rise on July 6 following reports that a deal was brewing.
KCI is a San Antonio, Texas-based medical device company focused on the wound care, tissue regeneration and therapeutic support system markets. The company’s products address a range of patient needs and are used by healthcare professionals in diverse care settings, such as acute care hospitals, long-term care and skilled nursing facilities, home health agencies and wound care clinics.
The deal is valued at approximately $6.3 billion, including outstanding debt. In 2010, KCI reported revenues of $2 billion. It is the largest healthcare acquisition for Apax, which teamed up with the Canada Pension Plan Investment Board (CPPIB) and the Public Sector Pension Investment Board, which manages investments for pension funds of the Royal Canadian Mounted Police and other state employees. Apax has shown a preference for working with large pension funds and sovereign wealth funds to secure acquisitions, rather than bringing in rival private equity firms, experts noted.
According to analysts, KCI was an attractive buy for private equity because it has stable cash flow but has had trouble growing. The bet is that demand for its surgical equipment will spring back.
The deal is expected to close by the end of this year, but the game could still change. KCI has time to solicit other bids—a period of 40 days. Kinetic founder James Leininger and other shareholders, who collectively hold about 11 percent of the company’s shares, have agreed to vote in favor of the deal.
“We see a very low probability of higher bids and don’t expect interest from strategic buyers,” analyst Michael Matson of Mizuho Securities wrote in a research note.
Other analysts, including Tao Levy of Collins Stewart predicted another bid from a private equity consortium still could come forward and valued the deal at between $73 to $76 per share. Matson expects more private equity deals in healthcare and medical technology over the next six to 12 months.
“We are highly impressed by the culture of innovation at KCI and are excited to work with a business that produces solutions that dramatically improve the lives of many people around the world,” said Buddy Gumina, partner and co-head of the healthcare team at Apax. “Over the years, we have reviewed multiple investments in the medical devices and products industry, having originally identified it as a key growth sector within our overall healthcare investment practice.
Andre Bourbonnais, senior vice president for Private Investments for CPPIB, said KCI has more growth potential outside of its core U.S. market.
“KCI’s business is well positioned for growth based on global trends such as demographics, including longevity and an aging population,” he said.
Other such deals could play out before year’s end. David Turkaly, an analyst with Susquehanna International Group, said likely future medical device targets include dental device maker Align Technology Inc., imaging company Hologic Inc., and orthopedic device makers Mako Surgical Corp. and Wright Medical Technology Inc.
Samsung to Increase Presence in Medical Device Industry
Seoul, South Korea-based Samsung Electronics Co. keeps up with the Joneses in a wide range of markets—namely home entertainment, mobile phones, and computers—and now it has taken an interest in medical equipment. According to Senior Vice President Jo Jae Moon, Samsung has begun negotiations with several companies to buy makers of magnetic resonance imaging [MRI] scanners and X-ray machines.
“We have a lot of companies on our list, and we’ve been contacting most of them,” Moon said in an interview in Seoul, South Korea, on July 15. According to Moon, Samsung would like to acquire small overseas companies with niche technology. “We’ll continue to meet them and negotiate,” Moon said. “We have a target to be number one across ultrasound devices, X-rays and MRIs.” Moon did not reveal the names of any companies.
Chairman Lee Kun Hee has said that demand for the health care equipment Samsung is interested in acquiring will continue to rise due to the increasing number of elderly residents in the United States, Europe and Japan each year. Bae Ki Dal, an analyst at Shinhan Investment Corp. in Seoul, agrees.
“Demand for expensive medical equipment will keep growing,” Dal said. “The market is mostly dominated by foreign companies now. It will be interesting to see how Samsung will compete with them.”
Moon said that Samsung will target annual sales of 10 trillion won, or $9.4 billion. The company plans to spend 1.2 trillion won, or $1.1 billion, in the medical equipment business by 2020 and increase staff in its medical equipment business, which has grown from less than 10 people in 2009 to more than 200 people currently.
The company’s biggest acquisition in the industry so far occurred last year, when it purchased Prosonic from Seoul-based Consus Asset Management Co. for 331.3 billion won (approximately $312 million), as well as a controlling 43.5 percent stake in diagnostic ultrasound device maker Medison Co. (also based in Seoul). Samsung increased the stake to 65.8 percent last April.
Cook Medical Announces U.S. Premarket Approval for Zenith Leg Graft Product
Cook Medical Inc. has received premarket approval from the U.S. Food and Drug Administration for the
Zenith Spiral-Z AAA Iliac Leg Graft, for patients with abdominal aortic aneurysms requiring graft support in the iliac artery.
“Zenith Spiral-Z provides physicians with Cook’s most kink-resistant and trackable iliac leg graft to date,” said Phil Nowell, vice president of Cook Medical’s Aortic Intervention division.
Zenith Spiral-Z offers enhanced flexibility and kink resistance due to a continuous nitinol spiral stent, as well as increased radial force at the proximal sealing site. It also features the Z-Trak Introduction System, which features polytetrafluoroethylene-coated lumen for reduction of surface friction and precise device delivery.
Zenith Spiral-Z was launched in Europe following CE Mark approval in April 2011, as part of Cook Medical’s Zenith Flex AAA Endovascular Graft product line.
Cook Medical is based in Bloomington, Ind.
St. Jude Lead Delivery System Gets U.S. Debut
St. Jude Medical Inc. has received U.S. Food and Drug Administration (FDA) approval for the Epiducer lead delivery system, which allows physicians to place multiple neurostimulation threads through a single entry point. The company also announced limited market release of the system, which is used for patients with chronic pain.
“The Epiducer lead delivery system represents an important paradigm shift and step forward enabling physicians to configure patient-specific systems utilizing multiple lead arrays to treat complex multifocal pain, and we are excited to bring it to the U.S. market,” said Chris Chavez, president of the St. Jude Medical Neuromodulation Division. The system is available in Europe, Australia and Canada, and physician feedback has been positive,
according to the company.
The system allows for the introduction of paddle leads percutaneously. Before the Epiducer system, the placement of paddle leads only was possible through a laminotomy, a more invasive procedure that typically requires removal of part of a vertebral bone. The system also reduces the need for multiple incisions typically required to place more than one neurostimulation lead used in spinal cord stimulation therapy.
St. Jude Medical is headquartered in St. Paul, Minn.
Phillips Plastics Inks Deal for Medisize
Phillips Plastics Corporation has entered into a definitive purchase and sale agreement to acquire
Vantaa, Finland-based Medisize Corporation from Ratos AB and other Medisize shareholders.
“Medisize has a world-class management team and European footprint, with demonstrated capabilities in high-volume manufacturing and high-speed automation that will strengthen Phillips’ service offering and global reach. This is a positive development for each company’s customers, suppliers, and employees,” said Matt Jennings, president and CEO of Phillips.
The acquisition, which is subject to regulatory approvals, is expected to be finalized by the end of August.
“We are excited to be bringing together two long-standing leaders in OEM manufacturing for the health care market with more than 30 years of experience in meeting customers’ needs,” Medisize CEO Willem van den Bruinhorst said.
Phillips Plastics is headquartered in Hudson, Wisc.
Medtronic Completes Cutbacks, Makes Pair of Surgical Technology Acquisitions
Medtronic Inc. will acquire PEAK Surgical Inc., a firm specializing in advanced energy surgical incision technology to broaden Medtronic Surgical Technologies’ portfolio of surgical products to meet global customer and patient needs. The announcement comes shortly after the company finished making workforce cutbacks, which resulted in the elimination of 1,700 jobs worldwide.
The total value of the transaction is $120 million. Medtronic had previously invested in PEAK and currently holds an ownership stake in the company. Net of this ownership stake, the transaction value is approximately $105 million. PEAK’s revenue is annualizing at approximately $20 million and is growing rapidly, according to Medtronic.
PEAK Surgical, based in Palo Alto, Calif., specializes in surgical instruments based on its proprietary PlasmaBlade, which consists of a family of disposable cutting devices with proprietary insulation technology that offers the exacting control of a scalpel and the bleeding control of traditional electrosurgery with minimal thermal tissue damage. PEAK’s technology is cleared for use in a variety of settings, including ear, nose and throat; plastic reconstructive; orthopedic; and general surgical applications. The PEAK Surgery System is cleared for use in the United States, and for use in general surgery in the European Union. In the United States, the PEAK Surgery System was launched in July 2008 and has been used by U.S. surgeons on more than 25,000 patients.
“We are excited about this opportunity to bring our companies together and further broaden Medtronic Surgical Technologies’ portfolio of innovative surgical products to meet customer and patient needs worldwide,” said Chris O’Connell, executive vice president and president of Medtronic’s Restorative Therapies Group.
In a separate development, Medtronic announced it has signed an agreement to acquire Salient Surgical Technologies Inc. of Portsmouth, N.H., another firm working on advanced energy surgical technology, particularly in the area of advanced haemostatic sealing of soft tissue and bone in various surgical procedures, including orthopaedic surgery, spine, open abdominal and thoracic procedures.
The total value of the transaction is $525 million. Medtronic previously had invested in Salient and currently holds an ownership stake in the company. Net of this ownership stake, the transaction value is approximately $480 million.
Medtronic is headquartered in Minneapolis, Minn.
Olympus Corp. Buys Spirus Medical, Merge Technologies
West Bridgewater, Mass.-based Spirus Medical has been acquired by Tokyo-based Olympus Corp. Financial terms of the deal, announced July 1, have not been disclosed.
The acquisition prompted the formation of a new company, Spirus Medical LLC, to continue distributing orders of endoscope insertion devices such as Endo-Ease Discovery SB and Endo-Ease Vista Retrograde over-tubes to existing customers until inventory is emptied. Inventory includes medical devices that aid endoscope insertion in upper and lower endoscopy, including a powered spiral device that uses a motor to aid endoscope insertion, as well as urologic and gynecologic devices. The company will operate as a wholly-owned subsidiary of Gyrus ACMI Inc., a U.S.-based subsidiary of Olympus.
Spirus is one of at least five start-ups spun off from Stoughton, Mass.-based STD Med Inc. in the past 10 years. Spirus previously received financial backing from Cambridge’s Bioventures Investors, Point Judith Capital and Village Ventures—all participated in 2007’s Series B funding round.
Olympus plans to create new endoscopic systems that merge Olympus and Spirus technology.
J&J Expands its Asia Presence
Johnson & Johnson has opened an innovation center in China to develop new medical devices and diagnostic products for emerging Asian markets.
The Johnson & Johnson Medical Companies Asia Pacific Innovation Center opened on June 22 in Suzhou, China, and will target its products to the Chinese and Indian markets, where the New Brunswick, N.J.-based company has had operations for about 30 years and 50 years, respectively.
“J&J products touch around one billion people every day. The important question is how do we help the next billion, many of whom live in Asia where health care needs are intensifying?” asked Alex Gorsky, vice chairman of J&J’s executive committee. “Both China and India are experiencing an increase in metabolic and chronic conditions such as cardiovascular disease, diabetes, obesity and cancer that many of our products diagnose or treat.”
According to Michael del Prado, company group chairman for J&J Medical Companies in Asia Pacific, the current portfolio of products is not adequately meeting the needs of patients in the region.
The company’s strategy will combine all seven medical device and diagnostic franchises with local knowledge. It also may include creating multi-use and disposable products that are more economical.
Some such products already have been launched, including the Ethicon Endo-Surgery re-usable linear cutter, the Synsyl suture range for Ethicon and the DePuy Reach knee.
To date, J&J has invested $115 million into the new 278,000-square-meter facility, which includes a DePuy manufacturing plant that has been operating since 2007 and a global finance shared services center, which opened in 2010.
ResMed Buys BiancaMed
ResMed Inc. has acquired BiancaMed Ltd., a medical technology company based in Dublin, Ireland. All outstanding shares were purchased with cash.
“We are committed to innovation in sleep and respiratory medicine and the related co-morbidities by commercializing products incorporating novel technologies,” commented Peter Farrell, Ph.D., D.Sc, A.M., ResMed’s chairman and CEO.
BiancaMed will become a part of ResMed’s newly created Ventures and Initiatives unit. ResMed estimates the acquisition will dilute earnings per share by approximately 4 cents in fiscal year 2012, excluding amortization of intangibles and one-time acquisition related costs.
“This acquisition will broaden the use of BiancaMed’s unique technology and build on BiancaMed’s momentum,” said Conor Hanley, Ph.D., CEO of BiancaMed. “As part of ResMed, we will continue to support our existing customers.”
ResMed plans to retain BiancaMed’s employees, and the office in Dublin will remain active.
“We have worked closely with BiancaMed for many years and have been investors since their inception in 2003,” Dr. Farrell said. “We believe there are many opportunities for BiancaMed’s applications that will provide future growth, and we look forward to maintaining and building the BiancaMed team.”
ResMed has its headquarters in San Diego, Calif.