According to Henry Kravis, one of fathers of the leveraged buyout and cofounder of the behemoth private equity firm Kohlberg Kravis Roberts & Co.—known to the financial world simply as KKR—“The trouble, in my opinion, with corporate America today, is that everything is thought of in quarters.”
Private equity firms buy struggling companies, fix them up and sell them off with the hope of generating huge returns for their stakeholders. While some would question Kravis’ true concern for the ultimate viability of a company past the point where he’s able to sell it, the message remains: Companies shouldn’t dwell on short-term performance, but develop a strategy for longer-term growth. It boils down to establishing the true value proposition for the organization.
Despite, Kravis’ admonition, I’m going to cite examples examining recent quarterly trends. According to a recent report from Irving Levin Associates on M&A in the healthcare industry, medical devices rank among the strongest in healthcare, accounting for $23.1 billion (31%) out of $73.2 billion in the first quarter of this year. Only pharmaceuticals came in higher at 36%.
“Despite the spate of new and promising technologies driving innovation, big pharma and medical device companies continue to tap the market for proven technologies and marketed products, blockbusters if they can afford them,” said Sanford Steever, PhD, editor of Irving Levin Associates’ Health Care M&A Report. “Medical device companies, in particular, sought to acquire established diagnostic tests and technologies to balance their portfolios of therapeutic devices.”
Also in the first quarter, according to a report by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), venture capitalists invested $1.08 billion in 96 medical device deals, a 60% increase from fourth-quarter 2006 funding.
“It was the strongest quarter ever for biotech and medical devices since we started keeping numbers 10 years ago,” Mark Heesen, NVCA president, told the San Francisco Chronicle.
This level of activity is reflected within the pages of this month’s Medical Product Outsourcing. Top of the News (page 12) highlights three recent multibillion-dollar device deals—Hologic announced plans to acquire Cytyc for $6.2 billion; a private equity firm bought Bausch & Lomb for $4.5 billion; and Cardinal Health is buying VIASYS Healthcare for $1.5 billion. In Industry News (page 103), you’ll read about Greatbatch Inc.’s plans to purchase Enpath Medical Inc. for $102 million.
And even before the ink is dry on a buyout or merger, management must (or should) begin thinking about how to combine different corporate cultures. To that end, this month’s feature “Improving Business Processes After a Merger” (page 98) offers practical tips on smoothing the transition following what often is Wall Street’s version of a shotgun wedding.
No matter where your company falls in the financial spectrum, we hope this information helps bolster your own value proposition.