Respironics deal sparks speculation

Thursday, January 31, 2008

MURRYSVILLE, Pa. - One of the home medical equipment industry's largest manufacturers changed hands in December, when Philips Electronics acquired Respironics for a whopping $5.1 billion.
As far as acquisitions of HME manufacturers go, this ranks as perhaps the biggest ever and has set off tremors in some parts of the industry, with the big question being: Who's next? Both ResMed and Fisher & Paykel are key players in the sleep market and analysts have mentioned them as potential acquisition targets. Companies that might want to diversify their portfolios and enter the market include General Electric and Johnson & Johnson, say industry sources.
"Wall Street and venture capitalists tend to play follow the leader," said one source.
Said another source: "This indicates that U.S. health care is looked upon favorably and adds credence that sleep is a good market. Respironics is the crown jewel of sleep, but ResMed is a strong number two. If someone wanted to be in the market, they are the other player."
A major player in the fast-growing market for sleep disordered breathing products, Respironics generates about $1.2 billion annually and has shown a compounded annual growth rate of around 19%. Steve Rusckowski, CEO of Philips Healthcare, said he expects that double-digit growth to continue and the company's core profit margin of around 15% to improve.
That kind of performance most likely spurred Philips--the world's biggest lighting maker, a top three hospital equipment maker and Europe's biggest consumer electronics producer--to pay "a very substantial premium for a sweet company," said one mergers and acquisitions expert.
Philips agreed to pay $66 per share in cash for Respironics, a 24% premium.
"A core part of Philips' healthcare strategy is to achieve a leading position in the high growth sector of home health care," said Rusckowski. "This acquisition is another important step in carrying out this strategy."
Upon the deal closing, Respironics will become the headquarters for Philips Home Healthcare Solutions Group within Philips Healthcare. Respironics' senior management team is expected to remain with the organization and will continue to run the business.