Covidien to Buy Israel-Based Device Maker for $300 Million
By Zeba Siddiqui
Posted on 03/19/12 | News Source Reuters | Comments (0)
(Reuters) - Covidien (COV.N) clinched a deal to buy Israel-based respiratory systems maker superDimension Ltd for about $300 million to gain access to devices for minimally invasive surgeries.
The deal signals a shift in the medical device industry towards more cost-effective procedures to tackle declining patient volumes, as fewer Americans opt for expensive treatments in light of a weakening economy.
"Minimally invasive surgery (MIS) offers many advantages over traditional surgery in the way of cost containment ... shorter patient hospital stays, fewer complications and fewer infections," Morningstar analyst Alex Morozov told Reuters.
The industry is likely to continue to see smaller deals like this, where bigger players such as Covidien will snap up smaller companies with promising technology in this "very next generation" MIS space, Morozov said.
The acquisition, which comes months after Covidien bought BARRX Medical for $325 million in November, marks the company's efforts to further consolidate in its strongest medical devices segment.
"They (Covidien) paid like 10 times of (superDimension's annual) sales, which is expensive, but long term it's a very good move," Caris & Co analyst Jason Wittes said.
Echoing Wittes, analyst Morozov said that with $30 million in annual sales, superDimension would not "move the needle for Covidien," so, the payment merely reflects promise in future potential of the technology being acquired.
The deal gives Covidien access to privately held superDimension's iLogic System, which provides minimally invasive access to lesions deep in the lung and lymph nodes.
According to Gabelli & Co analyst Jeff Jonas, several other industry giants including Medtronic Inc (MDT.N) were interested in buying superDimension. However, a rumoured bidding war culminated in Covidien eventually agreeing to pay $300 million.
"The product is underpenetrated right now ... They paid a lot for it, but that's because of the level of competition for this property -- it's a unique business and market opportunity," analyst Wittes said.
With Covidien's sales force and marketing infrastructure, the product has the potential to become a lot bigger, he added.
Terms of the deal, which Covidien expects to close in the second quarter, also include possible future performance-based payments.
Covidien does not see the transaction having a material impact on its 2012 sales, but expects it to slightly dilute full-year profit.
Covidien's stock has gained nearly 24 percent since last December, when it disclosed plans to sell its pharmaceutical division.
Shares in the company, which itself was spun out of U.S. conglomerate Tyco International (TYC.N) in 2007, were down 39 cents at $53.53 late Monday morning on the New York Stock Exchange.
Photo Caption: superDimension Ltd sold for about $300 million to CovidienRead More: Reuters