13 Oct GE Medical’s Acquisitions May Prompt More Purchases
General Electric made clear this week — with a one-two punch of an acquisition and a merger in a matter of hours — that it intends to grow its GE Medical Systems division. But in some cases, the acquisitions may actually induce the Fairfield, Conn.-based giant to make additional acquisitions in order to own market leader status in some of the product categories it just bought into, according to a company spokesperson.
On Oct. 9, GE Medical Systems division completed the acquisition of Finland-based Instrumentarium – including Madison-based anesthesia equipment manufacturer Datex-Ohmeda.
The transaction marked the second time Datex-Ohmeda was purchased in five years. But according to Datex-Ohmeda Executive Director Lori Cross, in each case ample time was allowed internally to allow the Madison entity to adapt to its new corporate environment.
“One could say the platform base began several years ago so customers are already enabled in a way to take advantage of the new technologies,” Cross said, suggesting Datex-Ohmeda was bracing for the eventual purchase for a while.
But while Datex-Ohmeda staffers were on their way to American Society of Anesthesiologists conference in San Francisco to publicize the deal, their new corporate overseers were still busy at the bargaining table.
The next day, General Electric completed a stock-only agreement to purchase Amersham, plc, a provider of diagnostic imaging consumables – including dyes used with imaging machines already manufactured and marketed by GE Medical.
Already, GE Medical is becoming powerful enough in its market space that regulators in the United States, Canada and the Czech Republic and the European Commission required Space Labs Medical and the Ziehm surgical C-arm business – portions of Instrumentarium — be spun off to maintain a competitive market. But analysts expect GE Medical to make additional acquisitions to complement its new buys and/or spin additional portions of Amersham off.
“They need to do one or the other,” Larry Neibor, an analyst with Robert W. Baird & Co. in Milwaukee, said. “Amersham has two very different businesses. The business that GE really wanted was their contrast media business. When you have an x-ray or MRI – these are the dyes used to make the image clearer. By far, Amersham is number one in that space. It would be a way for them to realize a flow of sales from the equipment they have been selling they had never realized before.”
While the marketing of dyes through existing channels of distribution makes sense, Neibor is less optimistic GE Medical would retain other parts of Amersham’s offerings. The future of the unprofitable drug discovery business might be particularly uncertain, according to Neibor.
“The other part is Amersham’s biosciences – and that is a completely different company,” Neibor said of the $1.1 billion entity. “It really is like two businesses – drug discovery products, which are sold into the research labs of companies doing drug discovery research. And then there are protein separations involved in production of protein and monoclinic drugs.”
Both drug discovery and protein separation are new markets for GE Medical, but Neibor surmised that the drug discover business may be discarded while additional acquisitions were likely to complement the protein separation business.
“Amersham dominates the separations market,” Neibor said. “The drug discovery business is also new – but not a great business. It loses money. GE always likes to be number one and number two in any industry – and in this area, Amershan is number five or six.”
During a conference call following the merger with Amersham, GE Medical brass said they planned to keep the drug discovery division intact.
Sources with the acquiring company demurred questions on GE Medical’s plans for the drug development division. But Peter Stack — a spokesman with GE headquarters in Fairfield, Conn. — implied GE would try to grow the business either organically or through additional acquisitions.
“The combination of these two companies is very good strategic fit for GE in several different ways. — not the least of which that it adds new capabilities to GE’s medical business,” Stack said. “All of Amersham is a well-run company that looks very attractive as an acquisition candidate. That being said, GE’s businesses are all about managing the portfolios so all GE’s businesses are analyzed on their fit and their ability to provide a return.”
“If that is the case, then chances are they would be looking to make further deals in the area of drug discovery,” Neibor said.
Charles Rathmann is a freelance writer and contributor to Wisconsin Technology Network. He can be reached at firstname.lastname@example.org.