The M&A rumors in medtech are in full swing, with a Wells Fargo analyst suggesting that Johnson & Johnson (NYSE:JNJ) could be eyeing major cardiac device players Boston Scientific (NYSE:BSX) and Edwards Lifesciences (NYSE:EW) for a big-ticket buy, while a Motley Fool analyst thinks Medtronic (NYSE:MDT) may have paid too much to pick up Mazor Robotics (NSDQ:MZOR).
Wells Fargo analyst Larry Biegelsen recently speculated that J&J could strengthen its position in the cardiovascular market by picking up either Boston Scientific or its rival Edwards Lifesciences, both of whom are heavily invested in the cardiovascular device and heart valve markets, according to a Barrons report.
In 2012, devices accounted for 41% of J&J’s total sales, but those numbers are expected to drop to only 32% by next year, Biegelsen said. He added that J&J’s chief exec Alex Gorsky has recently called attention to “the increasing innovation and friendlier regulation of devices, compared with some other products,” according to the report.
Johnson & Johnson has not commented on any plans for a major acquisition, but Biegelsen asserts that the move would make sense as it would give the company a ticket into the growing market of transcatheter heart valves, according to the Barrons.
While Edwards has a head start on the technology, having cornered two-thirds of the market for aortic valves and a leading position for transcath mitral tech, Boston Scientific also has its Lotus valve, which despite being pulled from the market last year is slated for a return in 2019, according to the report.
Either deal would see values in the tens of billions, with Boston Scientific commanding a $50 billion market cap while Edwards sits at $30 billion, according to the report. Biegelsen suggested that Boston Scientific would be a better buy, but rated both companies highly.
In a separate report from The Motley Fool, analyst Brian Feroldi suggested that Medtronic may have spent too much when it paid $1.6 billion to pick up surgical robotics platform maker Mazor Robotics.
In the deal, the Fridley, Minn.-based medtech giant paid a 10% premium for Mazor shares at $58.50 per share, valuing the company at approximately $1.6 billion, according to the report. Medtronic was already a major equity owner in the company, however, making the purchase price a more reasonable $1.3 billion.
Even with the lower price, the deal still valued the company at approximately 22 times trailing sales, Feroldi wrote, representing a “premium valuation.”
Medtronic, however, said that deal still met its strict double-digit returns criteria for acquisitions and only expects the transaction to be modestly dilutive to its fiscal 2019 earnings, according to The Motley Fool.
And when taking into perspective Medtronic’s $131 billion market cap, a $1.3 billion cash deal isn’t quite as significant to the medtech giant, Feroldi wrote.