Beckman Coulter Inc. went to Japan to expand in Europe.
Fullerton-based Beckman, a maker of instruments and supplies for medical laboratories and researchers, said late last month it is paying $800 million for a unit of Tokyo-based Olympus Corp.
The deal aims to boost Beckman’s business, not in Asia but in Europe, the backyard of two key rivals.
Olympus’ medical diagnostic unit gets about half of its nearly $500 million in yearly sales from Europe, with about 30% coming from the U.S. and 20% from Asia and the rest of the world.
Europe is “where we were the most scale-disadvantaged,” said Paul Glyer, Beckman’s senior vice president of strategy, business development and communications who played a key role in the deal.
Rivals Roche Diagnostics Corp., part of Switzerland’s Roche Holdings Ltd., and Germany’s Siemens AG dominate in Europe.
Last year, 22% of Beckman’s $3.1 billion in revenue came from Europe. The company sells testing machines and supplies to hospitals, laboratories running tests for doctors and medical and drug researchers.
Olympus’ products are “suited to the large laboratories that are very commonly encountered in Europe,” Beckman Chief Executive Scott Garrett said.
The company is acquiring Olympus machines that can run 3,000 tests per hour, something known in the industry as “ultra high throughput.”
Buying the Olympus unit also stands to boost Beckman’s sales of testing chemicals and bring customers for its immunoassay tests, which are routinely used to detect substances in urine or blood.
“Customers like to buy chemistry and immunoassay from the same company,” Garrett said.
Beckman’s machines can sell for $200,000 and are bought by hospitals and others every few years.
The company gets most of its revenue,about 80%,and much of its profits from recurring sales of chemicals used to run tests on its machines, as well as from lease and service payments.
Details of Deal
Beckman had talked with Olympus for nine years about the diagnostic unit, said Glyer, who recently returned from three weeks in Japan working on the deal.
Olympus, which also makes digital cameras, medical devices and computer products, decided to sell the diagnostic business last fall, Glyer said.
Beckman is financing the deal with $300 million in newly issued stock and $500 million in newly issued debt.
“We believe it’s going to be very conservatively financed,” Garrett said. “Investors should not see this as something that can’t be easily afforded by Beckman Coulter.”
Garrett said he wasn’t worried about issuing debt during the financial crisis. Debt investors are receptive to companies such as Beckman, he said.
After the Olympus deal was announced, Moody’s Corp. upheld a debt rating for Beckman of “Baa3,” which is at the low end of what’s considered investment grade.
Moody’s called Beckman’s outlook “stable” and said the company stands to benefit from the addition of Olympus’ diagnostic business.
Standard & Poor’s and Fitch Ratings Inc. also maintain their ratings on Beckman’s debt.
Analysts like the deal, though price was an issue for one.
“We think this deal makes strategic sense,” said Quintin Lai, Matthew Notarianni and Jeff Ares, analysts with Robert W. Baird & Co., a Milwaukee-based investment bank.
The analysts said they like how the deal will allow Beckman to sell immunoassay tests to users of Olympus’ machines.
Barclays Capital analyst C. Anthony Butler was more critical.
Beckman forecasts flat 2010 revenue for the Olympus unit with operating margins in the high single digits, according to Butler.
“In short, (Beckman) has paid 1.6 times revenue for a low-margin business that is not growing,” he said. “We believe the deal is strategically sound and accretive; we just wish it could have been at a better price.”
Beckman feels it paid “a full and fair value,” Glyer said.
The Olympus deal is the largest for Beckman since it bought Miami’s Coulter Corp. in 1997. The company then was known as Beckman Instruments Inc.
Two years ago, Beckman sought to pay $1.6 billion for San Diego-based Biosite Inc., which ended up being bought by Inverness Medical Innovations Inc. of Massachusetts.
The Olympus deal has some similarities with Beckman’s buy of Coulter,both help the company compete with larger rivals that keep getting bigger.
In 2006 and 2007, Siemens spent $7.2 billion to buy Dade Behring Holdings Inc. and the diagnostic business of Bayer AG.
But Beckman has a different aim this time around,taking on rivals in Europe.
“This acquisition is more about depth than it is breadth,” he said.
Olympus should add $40 million to $50 million to Beckman’s profits in 2010, along with $500 million in yearly revenue.
Beckman didn’t say if the deal, which is expected to close in the third quarter, stands to increase its profit this year.
Before the deal, Beckman projected a 2009 profit of $245.7 million to $258.4 million on sales of $2.4 billion to $3.2 billion in 2009.
Beckman is holding planning meetings on how to integrate the Olympus unit, Glyer said.
Once regulators sign off, the company has tapped Bob Hurley, its senior vice president of human resources, to lead the integration.
Hurley has Japanese experience,he spent eight years in Japan when he was with Chicago-based medical products maker Baxter International Inc.
Olympus’ diagnostic unit employs about 1,500 people worldwide. Beckman plans to keep a majority of the workers. Job cuts of overlapping positions are expected.
The company plans to replace the Olympus brand with its own name.
Beckman, which is one of few big standalone diagnostic companies left, will be looking to buy more companies, according to Glyer.
“We remain interested in acquiring tests and technologies,” he said. “We participate in a $35 billion industry and we only have $3 billion in revenue, so there’s plenty left to for us to do.”
