After Century of Family Ownership, Welch Allyn Sells for $2.05 Billion

After a century of family ownerships, Welch Allyn Inc. has agreed to an acquisition by Hill-Rom Holdings Inc. About 10 years ago, as it entered its fifth generation of ownership, the Allyn family concluded it could no longer both own and operate the Skaneateles Falls, N.Y.-based medical device maker.

“We decided there were too many family members to be both a family-owned and family-run company,” said Eric Allyn, great-grandson of William Noah Allyn, who founded the company with Francis Welch, M.D., in 1915. “We had to check some of those family issues at the door.”

Both company boards unanimously agreed to a purchase price of $2.05 billion—$1.6 billion in cash and the rest in stock.

Upon the completion of the transaction, which the companies expect will occur before the end of September 2015, Welch Allyn shareholders will own approximately 13 percent of the combined company. No single Welch Allyn shareholder will own more than approximately one percent of Hill-Rom equity.

When they agreed to let non-family members manage the company a decade ago, the Allyns expected to remain owners, Eric Allyn told Syracuse.com. But that changed this year as it became clear that smaller companies were no longer going to be able to compete in a global medical device industry increasingly dominated by big guys, he said.

Allyn said his family’s company has sold products to 200,000 doctors and 6,000 hospitals over the years. But many of those doctors and hospitals are now part of large medical networks. Instead of each doctor and hospital buying equipment, a purchasing manager representing entire networks of hospitals and physician offices calls the shots.

“In that model, it’s all about price,” Allyn said. “They don’t want a 5 percent discount or a 10 discount. They want a tremendous discount. Some of our products have had a 50 percent cut in price.”

Despite the recent challenges posed by the market, Welch Allyn has remained profitable. According to a filing by Hill-Rom with the U.S. Securities and Exchange Commission, Welch Allyn does about $700 million a year in sales and has a gross profit margin of greater than 50 percent.

In an attempt to grow, Welch Allyn has been on a buying spree in recent years. In June 2014, it acquired Florida-based PediaVision Holdings LLC, a maker of a portable device that screens patients of all ages for vision problems. The following December, it acquired HealthInterlink LLC, of Omaha, Neb., a medical software company specializing in remote monitoring of patient vital signs. And in January, it bought Hubble Telemedical Inc., of Knoxville, Tenn., a healthcare company that enables remote screening for diabetic retinopathy. And just in May, it bought Scale-Tronix Inc., maker of medical scales and patient weighing systems.

But it wasn’t enough.

“Family shareholders like to be private forever,” said Peter Soderberg, a former president and CEO of the company and the husband of founder William Noah Allyn’s granddaughter, Elsa. “But at the heart of the decision, the board and management team determined that selling the company was the best thing to do given the dynamics in the industry. The analysis was presented to the family and we certainly concurred with the finding.”
“It was an agonizing decision,” Spderberg added. “Frankly, there was a lot of crying and a lot of mourning. But in the end, the case was made.”

“Welch Allyn is a well-respected company with a powerful brand, a broad suite of products and an outstanding team of employees,” John J. Greisch, president and CEO of Hill-Rom said in a prepared statement. “We are committed to building on Welch Allyn’s legacy, and intend to maintain a major presence in Skaneateles Falls, the home to a large base of Welch Allyn’s talent, expertise and resources. We will also preserve the highly respected Welch Allyn name. We look forward to welcoming the Welch Allyn team to Hill-Rom and combining our two great companies to continue our shared mission of improving patient outcomes and reducing patient costs.”

“This transaction represents a compelling opportunity for Welch Allyn with the right partner in Hill-Rom, who appreciates our company’s special history, strengths and strategy,” added Steve Meyer, president and CEO of Welch Allyn. “Combining with Hill-Rom will enable Welch Allyn to build on our important accomplishments over the last 100 years and play an even bigger role serving and meeting the evolving needs of patients and healthcare systems around the world. Hill-Rom and Welch Allyn share a commitment to patients and a history of delivering innovative solutions. Hill-Rom has the scale, geographic reach, experience and vision necessary to foster the next stage of growth and to ensure Welch Allyn’s continued success.”

Greisch will serve as president and CEO of the combined company. Hill-Rom expects that certain members of Welch Allyn’s senior management will join the company. The company will be headquartered in Chicago, Illinois, where Hill-Rom has its headquarters, and expects to maintain a substantial presence in Skaneateles Falls, and Tijuana, Mexico, where Welch Allyn has significant operations.

Welch Allyn makes diagnostic technology including physical examination instruments and accessories and electronic medical record-connected vital signs and cardiac monitoring solutions.

Hill-Rom makes devices for the advancing mobility, wound care and prevention, clinical workflow, surgical safety and efficiency and respiratory health markets.