2010 - The Year in Med-Tech Deals

Medical technology has always been a sector with a high level of M&A activity in any given year. Large companies are always on the lookout for technologies and assets that can boost their growth rate, while a plethora of single-product/single-market outfits hope for the boon of a big-time payday. That said, 2010 was a bit of a disappointment in terms of deal activity. Though there certainly were notable deals throughout the year, the pace was slower than what most people predicted in late 2009. Perhaps, then, that means that 2011 will be an above-average year as economic recovery puts some life back into this lagging sector. (For more, see Where The M&A Action Is, And What's Next.)

The Gold Star Goes to Covidien 
Covidien (NYSE:COV) was certainly among the most active players this year. Covidien started off by getting rid of most of its respiratory care business and then turning around and buying peripheral and neurovascular specialist ev3 for $2.6 billion. Shortly thereafter, Covidien decided to expand its monitoring business by acquiring Somanetics in a $300 million cash deal. Time will tell whether the company can leverage these deals into sustainably higher growth rates, but it seemed to help Covidien's stock do a little better on a relative basis. (For more, see Covidien - Better Than People Seem To Think.)

St. Jude Quietly Following the Medtronic Model 
St. Jude (NYSE:STJ) still seems to carry a bad reputation from the days when it was the "other" company competing with Medtronic (NYSE:MDT) and Boston Scientific's (NYSE: BSX) Guidant in the pacemaker and ICD business. Nevertheless, St. Jude has quietly been building an interesting collection of businesses, largely through M&A. This year, St. Jude shelled out more than $1 billion to acquire AGA Medical and its cardiac repair business - a logical outgrowth of a company with interests in heart surgery, valve replacement, ablation, and other cardiology niches.


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Thermo Fisher Pays A High Price For Quality

Dionex (Nasdaq:DNEX) was on a lot of short-lists for potential life sciences M&A, and Thermo Fisher (NYSE:TMO) made that prediction a reality on Monday morning. Thermo Fisher, a large and diversified life sciences company announced that it was acquiring Dionex for $2.1 billion. 

Quality Does Not Come Cheap
Thermo Fisher is acquiring all of Dionex for $2.1 billion in cash, or $118.50 per share. That is a 21% premium to Dionex's price on Friday, and a healthy multiple for this niche company. Thermo is paying nearly five times trailing revenue and 20 times trailing EBITDA. That is well ahead of the current valuations for other niche analytical companies like Bruker (Nasdaq:BRKR), broad analytical companies like Agilent (NYSE:A), Waters (NYSE:WAT) and PerkinElmer (NYSE:PKI), and the acquiring company. In fact, investors pretty much have to turn to companies like Illumina (Nasdaq:ILMN) or Luminex (Nasdaq:LMNX) to see comparable valuations.

By the same token, there are plenty of reasons that validate that price tag. Dionex is one of the best companies in the sector in terms of ROIC and margins, and management have been very sound stewards of the company's capital. Where many companies fall all over themselves in trying to diversify and become a one-stop-shop for life sciences, Dionex has more or less stuck its specialty. That has allowed the company to build a 75% share in ion chromatography, while also building a decent (though small) high-performance liquid chromatography business. 


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