Last week, the world’s largest private-equity company quietly put its money on the table in what could turn out to be a very big gambling chip in the world of medical device mergers & acquisitions.
In a quarterly earnings announcement, The Blackstone Group (NYSE:BX) confirmed a startlingly large $16.1 billion leveraged-buyout fund, which is about 10 percent of the $159 billion total assets the firm has under management.
While the New York City, N.Y.-based company has primarily been putting cash into real estate deals and is eying the energy markets in the U.S., Blackstone has a history of making some big bets in medical technology. In 2006, Blackstone paid $11 billion to acquire Biomet, Inc. and in 2007 it bankrolled a $1.6 billion buyout of DJO Inc.
And that interest doesn’t seem to be fading. Blackstone, along with several other high profile private-equity firms, has been kicking the tires on several deals in the medical device space, culminating in the recent $6 billion buyout of Kinetic Concepts by Apax and a consortium of Canadian pension funds.
In addition to that deal, there’s some more evidence that medical device companies are looking like attractive leveraged-buyout candidates.
- In the $21.3 billion Synthes/Johnson & Johnson deal, a consortium of three private equity firms came in second to the New Brunswick, NJ-based healthcare conglomerate, offering a boat-load of cash, and forcing JNJ to up its own bid by about 7 percent.
- Recently, SeraCare Life Sciences Inc. (NSDQ:SRLS) said in regulatory filings that it was poised for a $82 million buyout by private equity firm MSMB Capital.
Does all this activity portend a mega-deal is in the works in med-tech? Perhaps not. However, if private-equity firms are looking to dig their heels into a whale of a deal like JNJ/Synthes, then that means that there’s likely as much smoke as there is fire in a hot season for M&A.
For now, the large medical device companies still have the inside track on acquiring most companies. However, even the Medtronics of the world face restrictions on how much cash they can spend on deals to boost their bottom line, despite the fact that most have been sitting on oodles of cash for years now.
And there’s also a perception gap; regulatory filings showed that Synthes ultimately went with JNJ’s offer because they couldn’t believe that private equity companies could come up with the kind of cash needed to make a $20 billion plus deal.
However, new evidence shows that this may not be the case.
A new EnY report showed that PE firms brought more than 84 companies public through IPOs over the last three months and as of the end of the second quarter there were 88 PE-backed companies registered to go public, which could raise more than $20 billion across global exchanges.
PE firms don’t seem to be as constrained by the credit crunch in the U.S., evidenced by Blackstone’s president Tony James, who told analysts on their earnings call that unlike most industries in America, “the banks have been very accommodating of credit to private equity.”
Flush with cash and with access to credit, the re-arrival of private-equity could be very good news for small companies looking to increase their valuation. However, it’s also bad news for the big med-tech players, which have enjoyed an unprecedented period of bargain hunting since the recession hit in 2008 and don’t want anyone driving up the prices on the market. After all, would you want to call the bluff of a player with $16 billion in chips?
Then again, if private-equity is for real than perhaps those big companies might find themselves with an offer they can’t refuse, or an ante they can’t match.
And, that’s when the fun really starts.