For some time I had felt that Johnson & Johnson (NYSE:JNJ) has been neglecting its MedTech business while building up the Pharmaceutical business into an impressive player in oncology and immunology. While I liked management's more recent comments about investing more time, energy, and resources into MedTech, including more growth-oriented R&D, I thought that M&A could be a valuable tool to accelerate the process.
Apparently so did JNJ management, as the company announced a major deal on November 1 with a deal for Abiomed (ABMD) that could be worth more than $18 billion, and that moves JNJ back into interventional cardiology in a big way. The deal is pricey and comes with above-average risk, but if Abiomed can deliver on multiple pivotal trials with market-expanding potential, and if JNJ can more effectively market Abiomed's technology on a global scale, the deal could still be value-additive over time.
While the deal is huge in med-tech terms, it accounts for less than 10% of JNJ's market cap today and isn't a big near-term needle-mover for valuation. A successful outcome could add more than $10/share to my fair value estimate for JNJ, but that is largely gated by clinical trials that won't finish for some time. JNJ isn't a bargain-basement name, and the shares have moved up since my last article, but I think it still has worthwhile GARP credentials for investors wanting some healthcare exposure.
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Johnson & Johnson Goes Back Into Cardiology With A Big Splash
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