Looking for examples of how the recession is creating opportunities for prepared, financially strong acquirers? Check out the deal Abbott Laboratories announced Monday morning to
buy Advanced Medical Optics Inc. for nearly $2.8 billion including assumed debt.
On one hand, the $22 per share price was a 149% premium to Advanced's closing price on Friday. On the other, it was less than half the $50 level that shares in the eye-care company touched in June of 2006.
Advanced shares have suffered mightily in the downturn because sales of its laser-vision correction service--not covered by most health insurance plans--have fallen sharply. In his third-quarter earnings call last October Advanced CEO Jim Mazzo talked of declining sales and
serious headwinds.
When those winds started to blow, it's a good bet that the dealmakers at Abbott (which wanted to grow its devices business and now says it is poised to become a "
global leader in vision") had already sized up the target and had a good sense of its value to Abbott. That was the pattern with previous acquisitions--and the company has executed more than $20 billion in transactions since chairman and CEO Miles White took charge a decade ago. Among them was the
nimble purchase of Guidant Corp.'s vascular business for $4.6 billion in 2006, one of several deals we discussed in a December profile published after Abbott was the healthcare-industry winner in our Most Admired Corporate Dealmakers survey.
As it happens there was another medical device deal Monday morning: Medtronic Inc. is
buying Ablation Frontiers, Inc. for $225 million up front, with possible further payments based on achievement of clinical milestones. Ablation Frontiers products are used to treat atrial fibrillation.
Any parallels? Maybe, though the targets are at different stages.
Advanced is well established in its markets with its Lasik system and $1 billion in revenue. Venture-backed Ablation, which was founded in 2004 and closed a third round of funding in 2007, got approval to market its catheters and RF system in Europe in 2006 and is conducting trials in the U.S.
Medtronics says it is building an atrial fibrillation solutions franchise. It recently bought CryoCath Technologies Inc.
For the VCs backing Ablation, a sale to Medtronics may have been one of a relatively few viable exit strategies. As
Alex Lash notes over on Dealscape, no venture-funded firm should count on IPO as a financing option in 2009. -
Kenneth Klee
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