Siemens/Varian – Health is Wealth
Updated: May 14, 2021
There’s been a lot of buzz in the healthcare industry this year (for obvious reasons).
Start-ups and mature firms haven’t hesitated to treat themselves to fresh financing and firms like Gilead (a firm developing a coronavirus vaccine) have seen their share price hit all-time highs this year. It’s a bit of a surprise then that the largest healthcare deal this year isn’t even related to everyone’s least favourite virus.
Siemens Healthineers, a German medical technology company, announced a $16.4bn takeover of Varian Medical Systems, a US based firm specialising in cancer treatment.
Siemens have argued that the prevalence of cancer between 2010 and 2030 is expected to almost double and analysts think they might be right. Revenues in the oncology treatment business (a complicated way of saying cancer treatment) are expected to hit $250bn by 2024.
The deal will be paid for in cash coming from a $17.9bn bridge loan (a short term loan which is generally used to buy time while an acquirer looks for more permanent financing) and Siemens say they’ll pay this off with debt and cash from issuing more shares in the future.
Siemens is set to acquire Varian at $177.5 a share, a 24% premium over their value in August, but why pay so much? Siemens think the deal will generate €300mn in synergies by 2025. Synergies are when 2+2=5, when a combined entity is able to generate more revenue than just the sum of its parts.
Siemens thinks it can combine its large clinical database with Varian’s world-leading radiotherapy treatments to develop the best treatment plans for cancer patients in the medical business.
It should be smooth sailing for Siemens as long as updates to the US’s Affordable Care Act don’t force Varian to cough up extra cash in taxes on medical equipment. The deal makes a lot of sense, let’s just hope new regulations don’t make Siemens synergies flatline.