Covidien shopping spree could continue

The medical device company has announced three acquisitions in Israel this year. Investors tell "Globes" there could be more.

On Monday, global medical devices company Covidien plc (NYSE: COV) announced its third acquisition in Israel in the past few months. In fact it actually bought PolyTouch Medical Ltd., which develops hernia mesh placement technologies, before its other two acquisitions in Israel but the announcement was only made this week.

The fact that this was the third acquisition in such a short space of time raises questions regarding Covidien's interest in Israel. Does the company have a set strategy regarding its acquisitions here and is the wave of acquisitions likely to continue? And what will be the fact of the companies already acquired - pulmonary endoscope developer superDimension for $350 million and capnography respiratory monitors and modules manufacturer Oridion Systems Ltd. (SWX: ORIDN) for $346 million as well as PolyTouch for $30-40 million.

One venture capitalist in the biomed sector who has talks on several deals with Covidien that did not result in agreement said, "Covidien is a pleasant corporation. They're nice both at a corporate level and the team looking for technologies in Israel is nice. They are fair in their acquisitions and overall excellent purchasers."

On the other hand another investor said, "They are nice but a bit remote. There is a felling at some of the companies that have worked with them that they are less exposed and work less closely together than say at Johnson & Johnson or Medtronic. The big corporations sometimes help and support even before they invest in a company."

What do they want to buy? He added, "They have significant activities in the surgical sector after acquiring US Surgical and this has made them a major competitor of Ethicon (Johnson & Johnson's surgical technologies company, which acquired Israel's Omrix). They have also acquired EV3, which has made them a major player in artery diseases."

He continued, "They are looking for activities in their existing areas or areas in which their major competitors are not operating. They understand that they are not yet big enough to enter new areas and compete head on with the giants. For example, the field of surgical devices against Ethicon is relatively difficult for them. Therefore they are focusing in the area of pulmonary devices which does not really belong to anyone. Other areas like this include anesthetics intensive care and monitoring."

Another investor points out that the two companies that Covidien acquired for the larger sums were companies based on sales worth tens of millions of dollars. He said, "This succession of exits does not mean we have returned to the good old days between 1995 and 2005. Covidien and other buyers with not acquire a company for a large sum if it has a technology that is just starting out unless it is exceptional, something unique for its decade. It is more natural to wait until sales reach about $50-60 million.

Another investor said, "Part of the team that seeks acquisitions in Israel was recently changed, and the new team continues to comb the market and seek out new technologies and thus we see that there could be a new wave of acquisitions by Covidien, although these might not necessarily be so close together as in the initial acquisitions.

The investor added, "In the past the company's CEO said that although he is buying only products that fit Covidien's portfolio, he said that he would also make opportunistic acquisitions, in other words that might not be focused on these specific areas and every relevant offer will be examined."

Covidien is registered as an Israeli company, among other things as part of the legal requirements for making the acquisitions. Covidien also has marketing operations in Israel but it is still not clear what will be the fate of the activities that it has acquired. The company has not declared its intention of amalgamating all its acquisitions into an Israel R&D center and the investors are not at all sure it has any intention of doing so.

One investor said, "I do not know what they will do with SuperDimension and Oridion. The future of these companies is still not clear.

All the investors we spoke to are certain that this is the right time to be making acquisitions for large medical device companies, which have recovered from the last wave of acquisitions worldwide and the uncertainty and low-point of the global financial crisis.

Published by Globes, Israel business news - www.globes-online.com - on May 1, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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