Yahoo Finance Volcano Agrees for Sellout to Philips to Aid Global Expansion - Analyst Blog
The MedTech sector continues to be characterized by back-to-back acquisition deals. U.S.-based precision guided therapy tool provider Volcano Corporation (VOLC) recently entered into a definitive merger agreement with the Netherlands-based electronics major Royal Philips (PHG), in an effort to create a prominent position in the global market for image-guided therapy.
Per the deal, Philips will acquire Volcano for $18.00 per share (or a total equity purchase price of $1 billion). The total transaction value will stand at $1.2 billion through a combination of cash on hand and the issuance of debt.
Volcano, which has unanimously approved the deal, expects the transaction to be completed in the first quarter of 2015. The acquisition is expected to create a strategic and financial fit that will provide more productive sales operations leading to higher growth and operating leverage. It is also estimated to enhance commercialization opportunities in new, adjacent segments.
Overall, the transaction is expected to remain accretive to Philips' earnings per share by 2017. Philips also targets an EBITA margin of around 20% for its image-guided therapy business group by 2017.
While image-guided treatments of the heart and blood vessels are gaining popularity by the day, there is an increasing trend to use advanced catheters that can produce ultrasound images of the interior of blood vessels (intravascular ultrasound or IVUS) or perform blood flow measurements (fractional flow reserve or FFR). Accordingly, while Philips has a rich portfolio of interventional imaging equipment, navigation tools, services and a sizeable global customer base, Volcano with its leading position in both IVUS imaging and FFR measurements is expected to augur well with Philips’ business in this niche market.
Management at Philips expects Volcano's advanced product portfolio to be highly complementary to its live image-guidance solution offerings. The combined entity is expected to accelerate the revenue growth for image-guided therapy business to a high single-digit rate by 2017.
Apart from this huge global market opportunity for image-guided therapies, the impending acquisition of Volcano will help Philips to gain economies of scale, lowering cost and delivering innovative diagnostics and therapies in the coronary and peripheral markets. Moreover, the combined entity will be able to further globalize the IVUS and FFR product offerings and tread into newer product areas in a better way.
Volcano currently holds a Zacks Rank #2 (Buy). Some other stocks that warrant a look in the medical instruments sector are Edwards Lifesciences Corp. (EW) and IDEXX Laboratories, Inc. (IDXX), both with the same Zacks Rank as Volcano.
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