Baxter acquires Hillrom, a U.S. medical device group, for US$12.4 billion

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M&A Update

Medical technology group Baxter International has agreed to acquire rival equipment company Hillrom for US$12.4 billion (including debt). This is the latest in a series of large-scale transactions in the medical equipment and healthcare industries.

Hillrom shareholders will receive $156 in cash per share, a 26% premium to the company’s closing price on July 27, when Bloomberg News first reported that Baxter’s initial acquisition plan was rejected.

A person familiar with the matter said that the Chicago-based company initially rejected an offer of $144 per share made earlier this year.

Compared with a year ago, mergers and acquisitions in the healthcare and pharmaceutical industries more than doubled in 2021, when the industry was affected by the pandemic. Data compiled by Refinitiv shows that since the beginning of this year, deals worth approximately US$570 billion have been concluded.

M&A in the medical device field is particularly active this year, with a consortium of private equity groups led by Blackstone, Carlyle and Hellman & Friedman Purchase majority stake Acquired Medline for approximately US$34 billion, including debt.

Over the past few years, transactions in the industry have accelerated, including Abbott’s US$25 billion acquisition of St Jude and Medtronic’s US$42.9 billion acquisition of Covidien, as the company seeks to expand as the industry’s profit margins become lower.

Since the beginning of this year, overall cross-industry M&A activities have also been booming. The value of deals reached to date is nearly 4 trillion U.S. dollars, a record high, more than twice the amount for the entire year of 2020.

Companies that were forced to abandon their deal plans due to the coronavirus last year have returned to the M&A negotiation table in recent months, partly because many CEOs worry that interest rates may rise in the future.

The current borrowing cost is at a historically low level, which makes financing transactions cheaper than usual.

Baxter said on Thursday that it will finance the transaction through a combination of cash and debt financing from JPMorgan Chase and Citibank. The Deerfield, Illinois-based company has a net leverage ratio of approximately 4.2 times the combined company’s earnings before interest, taxes, depreciation and amortization.

Hillrom makes medical equipment from low-tech hospital chairs to more complex wearable electrocardiographs and operating tables, combined with Baxter, which focuses on intensive care, nutrition, and surgical products, can generate $250 million in pre-tax cost synergies per year. In 2024.

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