Healthcare giant Smith & Nephew (FTSE:SN, NYSE:SNN) today announced a $782 million cash bid to acquire wound care products maker Healthpoint Biotherapeutics, a move that sparked mixed reactions from Wall Street.
Although analysts lauded the purchase, they also cast a wary eye on the price tag.
"Although this deal seems to be strategically important, the market will look at the valuation, which at 4.1 times revenues and 71 times EBIT will be seen as rich," British investment firm Panmure Gordon wrote in a note to investors.
U.K. -based S&N hopes the merger will expand its footprint in wound management, especially in the fast-growing bioactives market, which includes new methods for regenerating skin and treating wounds such as diabetic ulcers.
CEO Olivier Bohuon defended the $782 million price tag for Healthpoint as a good investment and standard transaction.
"We believe it’s a fair price, it’s a good price for acquiring such a growing business and such a future," Bohuon told Reuters. "It’s really normal for deals done in this kind of field."
Wound management products make up about a quarter of S&N’s business, although the company is best known for joint replacement products, Reuters reported.
Privately held Healthpoint has strong positions in bioactive debridement, dermal repair and regeneration products, which collectively drew $190 million in revenues during 2012, Smith & Nephew noted.
Smith & Nephew plans to integrate Healthpoint’s products into its Advanced Wound Management business, which should effectively double the division’s U.S. sales, according to a press release.
"The acquisition of Healthpoint is an important step for Smith & Nephew," Bohuon said in prepared remarks. "Strategically, it reinforces our Advanced Wound Management division by giving us a strong position in the fast growing area of bioactive wound care treatment. It brings material revenues from a fast growing product range, an attractive pipeline, and commercial and R&D capabilities upon which we will build."
The acquisition should be "broadly neutral" for S&N’s 2013 financial statements and accretive thereafter.
S&N’s wound management business has been consistently outperforming the market growth rate for years, the company noted. This latest acquisition provides the device maker a novel entry into the attractive bioactives market and also fulfills the company’s promise to build organic growth through acquisitions, according to a press release.
SN shares were down 1% this morning on the London exchange, trading at about $652.61 as of about 2:10 p.m.
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