Companies looking to get into the $10 billion medical testing market could find Beckman Coulter Inc. an attractive entree, some on Wall Street say.
Buyout talk about the Fullerton maker of medical testing gear and supplies intensified late last month, after competitor Dade Behring Holdings Inc. agreed to be bought for $6.3 billion by Germany’s Siemens AG.
Beckman Chief Executive Scott Garrett once ran Deerfield, Ill.-based Dade.
Shares of Beckman rose 8% the day Dade announced it was being bought by Siemens. The deal’s hefty premium,38% more than Dade’s closing price the day the offer was made,sparked speculation about Beckman.
The Dade-Siemens deal “is confirmation that some of these conglomerates are looking at the in-vitro diagnostics market as an avenue of investment,” said Quintin Lai, an analyst with R.W. Baird & Co. in Milwaukee.
The number of possible acquisition targets is shrinking, according to Lai.
Siemens bought Diagnostic Products, which was based in Los Angeles, and the diagnostic business of Bayer AG last year in two separate deals that totaled $7.2 billion.
“Dade Behring’s gone. Bayer’s gone. Diagnostic Products is gone. Abbott was once looked at. You have Roche, which is part of a larger conglomerate, Roche Pharmaceuticals. (But) they just recently promoted the head of diagnostics to CEO, so maybe one could think that business will stay intact,” Lai said.
“Beckman is the sole stand-alone player in this market,” he said. “With these mechanics, if the industry were to further consolidate, I would think Beckman would definitely be on that potential list.”
Other players in the medical testing market include Tucson-based Ventana Medical Systems Inc., which could be bought for $3 billion by Roche, and Johnson & Johnson’s Ortho-Clinical Diagnostics.
Beckman isn’t addressing any takeover talk. Last week, Chief Executive Garrett said during the company’s earnings call that he was confident that Beckman can compete as a stand-alone company.
“We still have a very compelling position,we have the breadth and depth (of) automation that our customers want,” Garrett told investors and analysts. “Long term, clearly Siemens is going to be our most important competitor. But I think we have everything we need to compete on a global basis.”
A medical imaging company that’s looking to get into testing could possibly eye a company like Beckman, said Jeffrey Frelick, an analyst with Lazard Capital Markets in Boston.
“Philips, GE and Siemens all had interest in the (in-vitro diagnostic) market, but Philips changed its mind. GE, we still believe, is interested,” Frelick said.
He cited recent reports that Royal Philips Electronics NV of the Netherlands has showed more interest in entering at-home testing rather than the hospitals or clinics that Beckman serves.
GE Healthcare, a unit of General Electric Co., had planned to buy Abbott Laboratories Inc.’s diagnostics business for $8 billion. That deal fell through last month.
Beckman’s attractive because it has a large number of its testing instruments already in the market, Frelick said. The company has more than 200,000 testing systems “and boasts strong positions in chemistry, hematology and immunoassay, along with a development program in molecular diagnostics,” he said.
Private Equity?
Another possibility: a buyout deal with a private equity firm or two that would take Beckman private, analysts said.
Frelick said he doesn’t expect the “merger mania” to quiet down.
“We believe that mergers and acquisitions in the diagnostic industry will continue, and buyers will likely be attracted to diagnostic companies with a large customer base, leadership positions in major clinical segments or technology in key growth areas,” he said in a research note.
Earlier this year, Beckman was caught up in the buyout trade winds when it got into a chase for Biosite Inc., a San Diego maker of heart disease detection tests.
Beckman first offered $1.55 billion at the end of March for Biosite and later upped its bid to $1.64 million amid a rival offer from Waltham, Mass.-based Inverness Medical Innovations Inc.
Inverness ultimately won the bidding battle.
“The acquisition that we were pursuing recently was a very attractive addition to our company,” Garrett said earlier this year at a speech at the University of California, Irvine’s Beckman Center.
“But we found ourselves in a competitive situation,” he said. “At a very early stage, we knew just how far we would go. We were disciplined in our approach and didn’t go any farther.”
Garrett is a veteran deal maker,earlier in his career he ran his own private equity firm with backing from Bank One, now part of JPMorgan Chase & Co.
