Last month’s $587 million deal by General Electric Co.’s healthcare unit to buy Aliso Viejo cancer testing company Clarient Inc. has one blogger wondering whether more deals, perhaps another local one, could be on the way.
Irvine-based Masimo Corp., a maker of patient monitoring devices, has been cited as a potential acquisition for GE Healthcare, which is loaded with cash and on the hunt for deals.
Masimo, which has annual sales of about $400 million and a recent market value of $1.8 billion, “would fit comfortably with (GE’s) patient monitoring business,” wrote Stephen Simpson, a blogger and former analyst, on website Investopedia.
Masimo makes devices and sensors that continuously measure oxygen and other substances in patients in operating and emergency rooms, intensive care units and other medical areas.
If GE were to acquire Masimo or Volcano Therapeutics Inc., a Rancho Cordova maker of heart catheters that got started in Orange County, “either acquisition would be an asset to GE’s ongoing effort to compete” with rivals such as Covidien Ltd., Royal Philips Electronics NV and Siemens AG, Simpson wrote.
Masimo declined to address the speculation.
John Dineen, GE Healthcare’s chief executive, recently told Reuters that the unit “could be more aggressive” with acquisitions in the next year.
GE got its start in healthcare with imaging devices, such as X-ray machines. Since then, it’s added a range of businesses, including patient monitors, diagnostic testing and consulting with hospitals.
GE Healthcare and other companies are looking for deals in part because the cost of borrowing money for deals is low, said Dennis McCarthy, president of Aries Capital Management Inc., a Los Angeles financial services firm.
“It’s cheap for them to borrow, if they even need to borrow,” he said. “Many of them have so much cash (that) they need to put it to work.”
GE had $121 billion in cash and short-term investments as of Sept. 30.
“There’s certainly a motivation on the part of big companies like GE to do just what that (Investopedia) article was saying—go ahead and take advantage of the fact that they have all the cash to spend,” he said.
An analyst who follows Masimo said he did not know of any pending deal but didn’t dismiss the possibility.
“Masimo does have all the characteristics that you look for in an acquisition” by a larger medical device maker, said Matt Dolan, an analyst with Roth Capital Partners LLC in Newport Beach.
Masimo is “growing well above the market rate (and) taking share away from its biggest competitors,” Dolan said.
The company’s third-quarter profit grew 29% from a year earlier to $16.9 million and surpassed expectations. Third-quarter revenue was up 16% to $101 million.
Masimo has “a pipeline of technology that we think will continue to allow it to grow at above-market rates,” Dolan said.
The company also is attractive, Dolan said, because of a portfolio of patents that has been proven through lawsuits against longtime rival Covidien.
Earlier this year, the 9th Circuit Court of Appeals in San Francisco affirmed a 2006 lower court decision that Covidien, formerly Tyco Healthcare, violated anti-trust laws with sales of its Nellcor pulse oximeters, which also monitor oxygen levels in patients and compete with Masimo’s devices.
Whether Masimo would be receptive to an overture is another matter, according to Aries’ McCarthy. The company “may not be just jumping to sell out,” he said.
“The market’s changing, so public companies like the Masimos of the world are getting a lot more attention and love from Wall Street,” McCarthy said.
Masimo’s shares are up about 25% in the past six months, versus a 5% gain for Nasdaq.
Gains on Wall Street could allow smaller medical device makers to stay independent longer rather than selling to one of the industry’s big names, McCarthy said.
