J&J bulks up before consumer health spinout with Abiomed buy

J&J sign (Wikimedia Commons)

Johnson & Johnson's $16.6 billion takeover offer for cardiac pump manufacturer Abiomed looks set to be the largest medtech acquisition of the year, and other buyers are unlikely to enter a bidding war for the business.

That's the view of BTIG analyst Marie Thibault, who reckons the $380 per share cash offer – a 50% premium on Abiomed's pre-deal closing price – will serve as a deterrent to other interested parties. She said the Abiomed will "is a high-quality target and fits J&J's businesses and company culture well."

The deal also ties in with J&J's plan to boost the margins it makes from its medical device and pharma divisions, as it prepares to spin off its slower-growing consumer health business before the end of 2023 and chase down target revenues of $60 billion in 2025.

[caption id="attachment_101373" align="alignright" width="200"] Impella heart pump[/caption]

Abiomed makes the bulk of its $1 billion-plus annual sales from its Impella range of heart pumps, which are billed as the smallest such devices available in the world and have enjoyed double-digit growth for several quarters, as well as margins upwards of around 22%.

Adding the business to J&J's $10 billion medtech business fulfils a pledge made by the group's chief executive Joaquin Duato earlier this year, when he promised to be more aggressive in M&A with a series of tuck-in deals and larger acquisitions where the rationale is compelling.

So far, the anticipated slew of deals has largely failed to materialise, despite free cash flow generation of around $13 billion this year that has taken the company's reserves north of $34 billion.

Explaining that situation on J&J's third-quarter results call last month, chief financial officer Joe Wolk said the market right now is "a little bit funny".

"The volatility actually doesn't help for a conducive M&A environment […] because you have sellers, potential sellers, holding on to 52-week highs or all-time highs, which, quite frankly, aren't too distant in the rear-view mirror," he said.

The Abiomed deal includes a contingent value right of $35 per share, which is tied to certain commercial and clinical milestones. For example, half the CVR will be payable to Abiomed shareholders if the company's annual sales top $3.7 billion at any point from the second quarter of 2027 through the first quarter of 2028.

[caption id="attachment_82995" align="alignleft" width="180"] Joaquin Duato[/caption]

"The addition of Abiomed is an important step in the execution of our strategic priorities and our vision for the new J&J focused on pharmaceutical and medtech," said Duato in a statement. "We have committed to enhancing our position in medtech by entering high-growth segments."

J&J and Abiomed said the transaction has already been approved by both companies' boards and is expected to close before the end of the first quarter of 2023, subject to regulatory approvals.