Behind Siemens Healthcare'S $16.4 Billion Acquisition Of Varian: Integration Of Track Giants And Bargaining Advantage After The Epidemic

In the second half of the year, the trading trend of medical devices, on the one hand, is limited by the trend of the epidemic and affects the trading volume. On the other hand, some subdivision areas that benefit from the epidemic and obtain a large amount of cash flow may appear new M & A hotspots.

The global medical device industry, which has been silent for some time, ushered in the first big deal.

As of 2020, the two sides have announced the acquisition of Varian Medical Systems at an average price of US $164.2 billion, equivalent to the total price of Siemens Medical Systems, which will be equivalent to the total price of Siemens Medical Systems by the end of 2020.

Siemens Medical said that the acquisition of Varian is expected to be completed in the first half of 2021, and ultimately must be approved by Varian shareholders and regulatory authorities, and meet other conventional acquisition conditions. After the transaction, Varian will continue to operate as the original brand of Siemens.

This is the "strong alliance" of the giants of the two medical device industries on their respective tracks, and it is the result of the integration of the upstream and downstream of the industrial chain. The selected time point is also somewhat intriguing.

"This merger feels a bit unexpected and reasonable." In an interview with 21st century economic report, Zhang Peng, executive partner of gaotejia investment group, said, "first, the two companies are global giants. It's normal to separate and separate for a long time. After that, we need to evaluate whether one plus one is greater than two in the future. Second, the transaction is definitely not a temporary initiative. It is a long-term evaluation and consideration, but the time point is complete The global epidemic situation has something to do with it. Whether it is the primary or secondary market, if it is not in the medical subdivision field strongly related to the epidemic situation, there is a large bargaining space in the valuation; third, the market structure, there are only two giants in the radiotherapy field in the world, except Varian, which accounts for 70% of the market, then it depends on how the medical technology company will go. "

The global epidemic has divided the medical industry into winners and losers. Travel restrictions have also pushed the pause button for mergers and Acquisitions: according to evaluate vantage, the average scale of completed mergers and acquisitions in the first half of 2020 is lower than at any time in the past 10 years. In the first six months of 2020, the average acquisition size was only US $108 million, the first overall decline since 2015. The number of transactions was only 57, with 251 in 2015 and 263 in 2016 at its peak in the past decade.

In the second half of the year, the trading trend of medical devices, on the one hand, is limited by the trend of the epidemic and affects the trading volume. On the other hand, some subdivision areas that benefit from the epidemic and obtain a large amount of cash flow may appear new M & A hotspots.

Industrial chain integration

On August 3, Siemens Healthcare announced its financial results for the third quarter of fiscal year 2020 from April 1 to June 30, 2020. Affected by the new crown pneumonia epidemic, the company's revenue was 3.312 billion euro, a year-on-year decrease of 6.9%; the revenue of imaging business decreased by 3.3%; the revenue of clinical treatment business decreased by 1.8%; the profit was decreased due to the decline of routine detection quantity of medical institutions, and the revenue of diagnosis business decreased by 15.9%.

Bernd Montag, chief executive of Siemens Healthcare, expects a significant improvement in the fourth quarter compared with the third quarter.

However, Siemens Medical is still a medical device giant in the fields of imaging diagnosis, in vitro diagnosis and interventional therapy. In 2018, Siemens Group completed the separation and independent listing of medical business, and Siemens Medical became an independent listed company. In fiscal year 2019 (as of September 30, 2019), Siemens Medical's total revenue was 14.5 billion euro, up 5.8% year-on-year, and the adjusted profit was 2.5 billion euro.

Varian is a leader in a more "low profile" segment than Siemens: it accounts for about 70% of the radiation market.

Varian has entered the Chinese market for more than 30 years. In 2007, Varian established a Chinese factory and regional headquarters in Beijing Economic and Technological Development Zone, and set up the only linear accelerator production base outside North America. In 2008, it set up its Asia Pacific Training Center in Beijing.

Varian mainly provides equipment and software for radiotherapy, radiosurgery, proton therapy and brachytherapy for cancer and other diseases, and is also a supplier of imaging components and safety testing related equipment. In fiscal year 2019, the revenue was $3.2 billion, and the adjusted operating profit margin was about 17%.

If the revenue of Siemens Medical and Varian is calculated according to the revenue in 2019, the combined revenue of Siemens Medical and Varian exceeds the revenue of GE Medical by US $19.942 billion; if we calculate the revenue in the first half of 2020, Varian's revenue is $1.623 billion, Siemens's revenue is $8.562 billion, adding up to $10.185 billion, which is also more than GE Medical's $8.626 billion.

"From Siemens' point of view, there used to be a radiotherapy business, but it may have been cut off because the growth was not as good as expected. After a few years, we will do this business again. " On the other hand, Zhang Peng believes that on the other hand, the merger of the two businesses is likely to be more and more closely combined with the existing business. Whether one plus one is greater than two depends on the internal system management. For Siemens, it has the advantages of a large group, but also has a long decision-making chain, so its flexibility is relatively poor. "

For Varian, the integration with Siemens Medical in the product level is relatively easy to achieve. "From the product level, we can make the overall solution of imaging and radiotherapy. In addition to equipment, Varian is also gradually providing services, such as radiotherapy centers. From the maturity of sales channels, Siemens Medical is stronger. "

In terms of time, the epidemic may accelerate the occurrence of this merger to some extent. Compared with Siemens, the impact during the epidemic is more direct due to the high correlation between business and cancer. On August 2, Varian announced its results for the third quarter of 2020, with total orders in the cancer sector down 14% and revenue down 16% to $694 million.

"The market value of companies engaged in in in-vitro diagnosis is rising rapidly, and it is very difficult for the buyer to negotiate the price." Zhang Peng believes that, but the tumor departments related to Varian's radiotherapy business, "in the first quarter of China, it is basically in the state of vacation or doctor deployment, and enterprises like MEDA and Varian will inevitably be affected. At this time, it is definitely a better time to purchase."

Recovery of equipment acquisition

Varian's acquisition makes people curious and imaginative about the direction of Koda, another leading radiotherapy doctor.

On January 17, 2019, Philips announced that it had signed a strategic cooperation memorandum with MEDA. The two sides will focus on precision radiotherapy for cancer according to the actual needs of the Chinese market.

After the merger of Siemens Medical and Varian, will Philips and MEDTEC expand their cooperation? Zhang Peng believes that this depends on the mutual management's recognition, "the cooperation between Philips and MEDA in the Chinese market in 2019 may be a test of water, because at present, the Chinese medical market is indeed the most prosperous market in the world. Depending on the degree of integration of the two sides, we can see the possibility of the global market. But in this area, the global monopoly situation is becoming more and more serious. "

For Chinese local enterprises, this merger may not be a particularly good thing. "More pressure on local enterprises. At present, Chinese radiotherapy enterprises are still fighting alone. It is impossible for the intention of upstream and downstream integration to exist, but there are not many leading parties with the ability to integrate and complete the merger and management in organizational structure, culture and management system. Domestic enterprises are still relatively conservative in such mature business activities as spin off, divestiture and merger and acquisition. "

From the global perspective, the recovery has been suspended due to the global outbreak.

In the first half of 2020, the main factor affecting the stock price performance of large medical device companies is the same as other industries. Ventilator manufacturers and testing manufacturers have increased, while plastic surgery and cardiovascular disease have decreased, as the epidemic has forced hospitals to re focus their work.

The downward trend is easy to describe: the products used by related companies for surgery, such as orthopedics, heart and dentistry, have been hit hard. Even inductive surgical, the market leader in robotic surgery, which has long been sought after by the market, has fallen 4% in half a year. MEDTEC is also one of the top five equipment companies, with its market value falling 30% in the first half of this year.

What may happen in the second half of this year depends on the development of the epidemic situation. The best example of the trend of large round financing for relatively mature companies is Grail's $390 million round D financing in May. This cancer early screening Unicorn company has a record of huge financing, especially in 2017 and 2018, with a total of $1.2 billion. Part of the recent cash injection came from the Canadian pension plan investment Council and Illumina, the predecessor of sequencing giant grail.

"Global medical device M & A may be more based on the long-term, and similar mergers and acquisitions may still occur in the second half of the year." Zhang Peng believes that "in China, IVD enterprises performed very well in the secondary market during the epidemic period, with abundant spare funds. In a sense, many enterprises have the idea of expanding, including consumables with high consumption value, and there are some signs in the market."