May 1, 2022
Deal Review Mergers & Acquisitions Division
Executive Board
Capison Pang
Paul Giphkin
Co-Founder and President
Vice President of Development
Spoorthi Vittaladevuni
Sander Head
Vice President of Operations
Vice President of External Relations
Officers
Abhishek Murli
Great Laowatdhanasapya
Editor-in-Chief
Co-Head of Mergers and Acquisitions
Jake Bednarz
Jinal Patel
Co-Head of Mergers and Acquisitions
Editor of Consumer and Retail
Officers
Ron Panigrahi
Aditya Anand
Editor of Healthcare
Editor of Industrials
Ariel Dasgupta
Boris Bokchin
Editor of Technology, Media, and Telecom
Editor of Technology, Media, and Telecom
Table of Contents Wesco’s Merger with Anixter International
5
Abhishek Agrahara
Microsoft’s Acquisition of Nuance Communications
7
Joshua Lee
Block’s Acquisition of Afterpay
9
Sahiti Kadiyala
Google’s Acquisition of Fitbit Tyler Horberg
Target’s Acquisition of Shipt
11 13
Kriti Vardineni
Apollo Global’s Acquisition of Michaels
15
Nick Horowitz
Siemens Healthineers’ Acquisition of Varian
17
Jordan Ellis
Goodyear’s Acquisition of Cooper Tire
19
Benjamin Wilson
Cerner’s Acquisition of Kantar Health
21
Aryan Shelke
Novartis’ Acquisition of The Medicines Company Greg Paxton
23
WESCO & ANIXTER INTERNATIONAL By: Abhishek Agrahara Mergers and acquisitions activity in the Industrials sector has had a number of blockbuster deals over the years, one of which was Wesco International’s merger with Anixter International. Prior to the announcement of the deal Wesco’s share price was at $58.14, which rose to $59.53 upon the announcement. Wesco International is a leading provider of electrical, industrial, and communications products, and Anixter is a leading global distributor of network & security solutions, electrical & electronic solutions, and utility power solutions. The rationale behind the deal was that the merger would combine two industry leaders to form the premier electrical, communications and utility distribution and supply chain solutions company in the world. They would do this by combining Wesco's capabilities in industrial, construction, and utility with Anixter's expertise in communications, security, and wire and cable. Significant cross-selling opportunities that capitalize on accelerating secular trends of electrification and increased bandwidth demand were expected as a result of the deal. In addition, Wesco expected to realize
www.reallygreatsite.com
Deal Review | 5
annualized run-rate cost synergies of over $200 million by the end of year three through added efficiencies in corporate and regional overhead, optimization of the branch and distribution center network, and productivity in field operations and the supply chain. The merger was a $4.5 billion acquisition financed using a mixture of debt and cash. The debt portion of the deal amounted to roughly $3.6 billion, with a breakdown of $1.2 billion from a revolving credit facility and $2.4 billion from long-term debt securities. Barclays served as the financial advisor for Wesco, while Centerview Partners served as the lead financial advisor for Anixter. Wells Fargo also served as a financial advisor for Anixter.
Merger
Approaching two years following the transaction, the merged company has a share price of $132.85. Wesco’s EPS ratio is $7.84 with a P/E ratio of $16.95. The deal has been successful over the course of the past two years, specifically by realizing their proposed cost saving synergies. While WESCO’s initial expectations were set to save $200 million in costs over three years, they revised their first, second, and third year goals to achieve $100 million, $180 million, and $250 million respectively. Wesco has been able to successfully combine Anixter’s specialties with theirs, creating three main business segments consisting of electrical & electronic solutions, communications & security solutions, as well as utilities & broadband. One unique characteristic of the electrical utilities industry is how segmented the market is based on location. Given the international reach of the merged company, operations should've spread morenternationally. Despite this deal, Wesco has for the most part maintained their heavy production in the iU.S. and Canada. It would be in Wesco’s best interest to try and capitalize on the new locations that the merger has given them access to. With the RussiaUkraine war raging on, countries around the world have realized the importance of transitioning towards renewable energy. Wesco can take advantage of this opportunity to distribute the materials for and build renewable and sustainable electrical grids in countries that are now attempting to transition faster than ever. Deal Review | 6
MICROSOFT & NUANCE COMMUNICATIONS By: Joshua Lee On April 12, 2021 news broke that multinational tech giant Microsoft was planning to acquire Nuance Communications, a healthcare speech recognition company in an allcash deal worth $19.7 billion. Microsoft would buy Nuance at $56 a share, an approximately 23% premium of Nuance’s share price prior to the announcement ($45.58). After the announcement, Nuance’s stock rose 16% to $52.85. The rationale behind the deal on Microsoft’s end was to make a substantial and strategic expansion into the healthcare sector, and Nuance came off as a suitable target. For a brief company profile of Nuance Communications, they are a leader in healthcare AI and speech recognition technology used primarily in clinical patient documentation by healthcare professionals as well as biometric measurements. Nuance's products and services are used in 77% of U.S. hospitals, by 55% of U.S. physicians, and by 75% of U.S. radiologists. Moreover, Microsoft specifically targeted Nuance with the goal of providing its cloud computing and data storage/analytics tech to hospitals.
www.reallygreatsite.com
Deal Review | 7
Nuance itself saw a 37% revenue growth in its own healthcare cloud business in its fiscal year 2020. On the management side of the deal, the deal was unanimously passed by the Boards of Directors of both companies. Additionally, Nuance’s CEO, Mark Benjamin, would retain his position and report directly to Microsoft’s Vice President of Cloud and AI, Scott Guthrie. Goldman Sachs and Simpson Thacher & Bartlett served as Microsoft’s respective financial advisor and legal counsel while Evercore and Paul, Weiss, Rifkind, Wharton & Garrison LLP worked with Nuance. Synergies of the deal include directly complementing products as Nuance would be able to integrate and augment its software services such as their Powerscribe 1 radiology software directly with Microsoft’s Cloud for Healthcare platform and other cloud services such as Azure, Teams, etc.
Merger
Another synergy would be strategic synergy, as both companies have actually collaborated in the past. For instance, in 2019 they worked together to develop AI software that helped doctors record conversations with their patients and transfer important information from those conversations directly into electronic health records. Finally, the acquisition leaves the potential for a cost synergy by means of a headcount reduction that could increase organizational efficiencies. Currently, Microsoft’s stock is at $300.43 per share with a P/E ratio of 31.99. The deal itself looks to have been successful as Microsoft themselves claimed in a statement from an April 12, 2021 press release that they expect their total addressable market (TAM) in the healthcare provider space to double, raising Microsoft’s TAM in healthcare to almost $500 billion. Moving forward, I believe Microsoft should prioritize building AI and voice recognition technology that reduces/makes clinical documentation for healthcare professionals more convenient because that was what Microsoft and Nuance worked together on in the past and what both companies likely have the most infrastructure for. I also believe that Microsoft should work to integrate as many of its cloud services such as Azure IoT with Nuance’s pre-existing products such as their PowerScribe One radiology software, not just as a means for increased performance but also as a means of increased product differentiation. Finally, I also recommend that Microsoft make full use out of leveraging Nuance’s strong, diverse network of EHR systems providers in order to further entrench their expansion into healthcare IT. Deal Review | 8
BLOCK INC. & AFTERPAY By: Sahiti Kadiyala A recent monumental acquisition within the TMT industry was Block’s acquisition of Afterpay. Known as Square prior its name changing, Block serves as an innovative financial technology platform which has revolutionized transaction processes, both in the hardware and software sector. Prior to the acquisition of Afterpay, Block’s share price closed at $111 on January 27th. Post-acquisition, Block’s stock price increased to $135.69. The purpose of the deal was to streamline the process of using financial technology platforms through online transactions. As stated by Business Insider, the new and improved process of using Block with Afterpay allows them to “take advantage of Block’s lucrative global merchant base.” The deal itself benefits not only Afterpay but also Block in numerous ways. Since Block owns both hardware and software products, integrating Afterpay into Block’s hardware devices boosts customer loyalty and their sales On the other hand, the acquisition of Afterpay also proved to improve Afterpay’s volume. The rising technology with “buy success in numerous ways. Block has been now pay later” transactions has allowed able to increase visibility of Afterpay’s more customers to engage in buying higher priced products, thus boosting services, thus increasing opportunities to partner with a variety of merchants. Block’s sales volumes. Furthermore, conversion rate increases were predicted Particularly, Block’s hardware often works post the M&A deal; Buy now pay later directly with small businesses, and services are now able to increase through the recent acquisition, Afterpay conversation rates by around 25% through has now gained significant exposure to Block’s acquisition of Afterpay. smaller merchants who can capitalize on the buy now pay later services. Vendors who utilize Square for online transactions have now expanded their services to include Afterpay’s buy now pay later mechanism, driving incremental revenue increases steadily. Furthermore, the underlying social concept pertaining to the acquisition includes the idea of expanding financial inclusivity with the most effective technologies. www.reallygreatsite.com
Deal Review | 9
Merger
Block acquired Afterpay for $29 billion through an all-stock deal structure. Major banks involved in the deal included Citi Ventures, Rizvi Traverse Management, Goldman Sachs, and GIC Private Limited. After the deal was successfully completed, numerous small businesses have started to witness increased sales revenues due to the wellexecuted synergies initially predicted. For example, owners of Kendall’s Greek Smart Wear shared that purchases on their Block-powered website were 20% larger since shoppers were able to immediately make use of Afterpay’s features. To best utilize the acquired product, it is crucial for Block to seamlessly integrate Afterpay’s software, both on e-commerce platforms for small businesses and their hardware point-of-sale systems. Analysts believe that Block’s stock price is currently overvalued due to its high P/E ratio. As of March 25th 2022, Block’s P/E ratio has been 264.82x, which is significantly higher than similar competitors including PayPal with a P/E ratio of 31.8x and GoDaddy with a P/E ratio of around 58.3x. To effectively merge Afterpay into Block’s services and products, small business owners need to be aware of how Afterpay’s “buy now pay later” option would affect their timeline of earnings, and that sellers using Block’s technologies can expect to receive the full amount from each sale immediately. Furthermore, another key recommendation would be for consumers to be aware of the added benefits of managing their finances within CashApp, another “buy now pay later” platform where they are able to discover small businesses that are utilizing Afterpay’s services and discover more inclusive payment options. Deal Review | 10
GOOGLE & FITBIT By: Tyler Horberg Google is a multinational technology company that specializes in Internet-related services and products that signed a deal to acquire Fitbit, known for its wirelessenabled wearable technology for $2.1B. Fitbit’s latest and most advanced health and fitness smartwatch, which has stress management tools and new ways to manage your heart health, could help Google come up with a wearable product to take on its biggest rivals such as the Apple watch and Samsung Galaxy watch. Google is confident that the combination of Fitbit’s leading technology products in health and wellness innovation with the best of their AI, software and hardware will drive more competition in wearables and make the next generation of devices better and more affordable. The integration of this exciting new architecture into Fitbit’s technology will not only improve the technology but also continue the company’s trajectory for improving healthcare AI. With the revenue from smartwatch sales industry-wide set to double to $34 billion by 2023, and the recent spike in the healthcare tech industry, Google is using Fitbit to take advantage of these growing sectors. Furthermore, Fitbit is a leader in the healthcare tech industry since Google could benefit from Fitbit’s they have strong relationships with insurance expertise in working alongside corporate companies, other firms and even the partners and other stakeholders in the government of Singapore to provide healthcare world. Overall, the main customers, employees, and citizens with purpose of this deal is to ensure that with fitness trackers in what are likely profitable the acquisition of Fitbit, Google can deals. innovate faster, provide more choices, and make even better products to support health and wellness needs Google acquired Fitbit for $7.35 per share, valuing the company at $2.1B. On the news that Google had made an offer to acquire Fitbit, Fitbit’s stock surged more than 30% and closed at a market cap of $1.5 billion, up $340 million from the previous trading day. www.reallygreatsite.com
Deal Review | 11
Merger
Lazard Freres & Co advised Google to acquire Fitbit since they have helped Google on past acquisitions involving cloud software and data sciences. Qatalyst Partners LLP was the financial adviser to Fitbit on the deal and Fenwick & West LLP was the legal adviser. Google’s net income was $20.6B in Q4, generating a strong cash flow of $18.6B and $67B in 2021. They ended the year with $140B in cash and marketable securities. They also purchased $50B in a stock buyback program, up from $18B since 2019. To improve its services for the consumer, Google is investing in companies built around trust, privacy, cybersecurity, and content moderation. Google very seriously wants to connect users to merchants in the ecommerce space and are spending massive amounts of cash on B2C investments like Shopify, Square and Fitbit. Considering the increase in cash flow, hopefully these investments continue. Google has acquired valuable data per person which has great potential to become a connector for AI-generated health insights. Google will utilize its Cloud Healthcare to integrate Fitbit’s health and fitness data into medical records, thereby facilitating the bridge between data and doctors. Therefore, by selling the wearable watches and the data that comes with them, Google has created new streams of revenue. Since the deal closed just under a year ago, these revenue synergies will be realized in one or two years from now allowing Google to incorporate Fitbit’s technology into its current business structure. Deal Review | 12
TARGET & SHIPT By: Kriti Vardineni Every day consumers are looking for products to appear at their doorstep sooner and sooner, and when companies like Amazon make same-day delivery a reality, similar businesses need to expand their digital fulfillment efforts to compete in the industry. Target’s all-cash acquisition of Shipt, an American same-day delivery service for $550 million in 2017 was meant to do exactly that. Before their announcement, Target’s stock was trading at $56.39 and after the announcement in late December, their stock was trading at $64.74, about a 14.2% growth. In early 2017, Target had laid out a strategic agenda focused on giving consumers a more convenient method of shopping. At this time, Shipt had over 20,000 personal shoppers, strong market penetration, and expanded to over 72 markets. From products in fresh food, household items, electronics, and more, Shipt could bring the items to your doorstep within 24 hours, and this acquisition put Target in a much better stance to compete with companies like Kroger, Walmart, or even Amazon. In 2020, Target saw a 25% increase in new customers after making a specific change to their Shipt membership
www.reallygreatsite.com
Deal Review | 13
model, where customers had a larger variety of pricing options to purchase deliveries, increasing its accessibility. By the second quarter of 2020, Target’s sales grew 350% year over year. I believe Target’s acquisition of Shipt in 2017 set them up for success. In 2021, Target’s sales had grown 86% year over year in the first quarter and 20% year over year in the second quarter. Shipt is a major growth driver for Target and as they expand the products they deliver and into more regions, they can drive out one of their largest delivery service competitors: Instacart.
Merger
Additionally, post-pandemic customers are realizing the importance of having time for family, weekends, or vacations, and delivery allows people to maintain that flexibility as life goes back to normal. Though this acquisition was great for Target, many of its competitors made similar moves. Walmart completed an acquisition of Parcel, a New York City-based sameday delivery company to incorporate its technology and network of employees into its own operations. The exact price of the transaction is unknown, but sources claim it was less than $10 million, and Parcel had only raised $2 million in the seed funding round, whereas Shipt raised $20 million in their seed funding round in 2016. Additionally, Kroger has developed two delivery services: The Kroger Delivery Service which partners with Instacart to deliver groceries, and KrogerShip which delivers products in beauty, personal care, gaming, and more. There are two key differences between Target’s acquisition of Shipt and its competitor's attempts to further develop their delivery services. Shipt was much larger when originally acquired and combines what Target’s competitors have into one. For example, Walmart’s acquisition of Parcel began only in New York City whereas Shipt began as a larger company in 72 markets and with larger funding. Furthermore, the costs of having two separate delivery services, Kroger Delivery Service and KrogerShip will be more extensive than the costs Target will have to bear with one complete acquisition. Kroger had also offered $400 million to acquire the company Boxed, a website to buy food and household goods in bulk, but was denied. I believe Shipt could continue to push for a more personal connection between Shipt shoppers and the customers. Having shoppers go the extra step to communicate deals and engage customers while expanding overall will allow Target to utilize this acquisition to its full potential.
Deal Review | 14
APOLLO GLOBAL & MICHAELS By: Nick Horowitz In March 2021, private equity giant Apollo Global Management (NYSE: APO) announced its plans to take arts and crafts retailer Michaels private in a deal worth $5 billion. The leveraged buyout valued shares of the retailer at $22, marking a hefty 47% premium to the prior closing price and valuing Apollo’s stake at $3.3 billion. UBS acted as the financial advisor to Michaels and Credit Suisse advised Apollo. With all of America bored at home after the onset of the COVID-19 pandemic, Michaels saw as big as a 15% year-over-year increase in sales. Now, Apollo is betting on two trends that I believe are unpopular amongst the broader public: “pandemic darlings” continuing to thrive despite the return to normalcy and brick-and-mortar stores surviving the ecommerce revolution led by Amazon. When asked about the deal, the head of the Retail and Consumer Group at Apollo Andrew S. Jhawar stated, “There is a lot of room to elevate the Michaels brand as the go-to-destination in arts and crafts.” Thankfully for Apollo, Michaels boasts both a strong real estate portfolio and nearly 12,000 employees. Interestingly enough, this transaction was not Michaels’s first time around the block in private equity. The store was taken private by Blackstone and Bain Capital in 2006 and was brought back to the public market in 2014.
This time around closely resembles the prior joint acquisition as private equity firms again see upside in a large retailer with consistent cash flows. However, the stock has gained just $5 in the past seven years and Apollo sees room for improvement. www.reallygreatsite.com
Deal Review | 15
Merger
Approaching two years following the transaction, the merged company has a share price of $132.85. Wesco’s EPS ratio is $7.84 with a P/E ratio of $16.95. The deal has been successful over the course of the past two years, specifically by realizing their proposed cost saving synergies. While WESCO’s initial expectations were set to save $200 million in costs over three years, they revised their first, second, and third year goals to achieve $100 million, $180 million, and $250 million respectively. Wesco has been able to successfully combine Anixter’s specialties with theirs, creating three In my opinion, this deal will not result in substantial changes for Michaels, arts and crafts, or brick and mortar retail in general. Apollo paid a premium on shares that were already at the tail end of a massive bull run and I fail to see the angle, especially when considering the price that Apollo will need to exit at down the line. I do not buy that a sudden resurgence in sales was anything more than just Americans being bored out of their minds at home. Additionally, competition in the arts and crafts space is fierce; Hobby Lobby has been around for what feels like forever and Jo-Ann’s has been seeing enough success to IPO during this past year. Nonetheless, I will be keeping my eye on Michaels’s inevitable return to the public market and the ways in which Apollo will go about improving operations. Deal Review | 16
SIEMENS HEALTHINEERS & VARIAN By: Jordan Ellis The Siemens Healthineers acquired Varian Medical Systems on April 6, 2021, and the deal value was $16.4 Billion dollars. Siemens Healtineers share price was $25.86 before the announcement. After one month, It increased by 17% and reached a price of $28.60 after close on 4/7/2021, but presently has grown to $31.32 as of 3/18/2022. Siemens bought Varians shares for $177.05 in an all cash deal which at the time created a premium of 24% over the most recent closing price. J.P Morgan and UBS were the two main coordinators for Siemens, while Goldman Sachs served as the sell side advisor for Varian, while Wachtell, Lipton, Rosen & Katz acted as the legal counsel. The rationale behind the deal was for Siemens to expand in their healthcare sector, and Varian’s research-based scope presented a strong hold on cancer research in the following 5-10 years. In addition to their similar cutting-edge ideologies, Siemens can also present Varian with a strong financial base for additional research. Siemens prides the a mix of both hard cost synergies and company on being innovative, having lots of capital research and funding at their disposal. soft geographical advantages. The soft synergies come in the form of revenue They expected the deal’s synergies to be increase, where we see by the end of mostly hard, being able to cut costs by a substantial amount having the engineering 2021, the Varian deal has added about 1.1 billion euros to the net income of the resources of Siemens, as well as being able to company from implementing their produce more efficiently, and with cheaper cancer-care products and invested production costs. What was present in the research into new geographical deal was locations in Europe and Asia. Siemens also stated that with Varian’s raw research, they are able to relocate facilities and utilize global production with their reach as an international presence in healthcare. Siemens also stated that with Varian’s raw research, they are able to relocate facilities and utilize global production with their reach as an international presence in healthcare. www.reallygreatsite.com
Deal Review | 17
Merger
On the cost-side, Siemens was looking for strict EBIT synergies of at least 300 million euros by the end of the 2025 fiscal year. As of 2022, we have not seen a significant impact on the cost of production, but all 10,000 Varian employees have stayed with the new company, implying that they have not restructured Varian’s production process. While Simmons is a massive industrials company, and a merger like this might not totally sway the company in one direction or not, we have seen that after the acquisition of Varian, the annual earnings In a statement from Variant after the per share increased from $0.30 in 2020, to announcement of the deal, this was one of $0.45 in 2021, which is the highest it’s the outcomes that Siemens wanted with the reached since 2017, suggesting the acquisition, being able to cut down a lot of company is more profitable now than the inefficiencies Varian had. Siemens is able before the deal had occurred. In addition, to drastically increase production of the the gross profit of the company has Varian products with their facilities and increased from $5.5 billion in 2018 to $7.2 research base, inherently increasing the billion in 2021. volume of sales and decreasing the overall cost of the products. The current share price of the company is at $32.34 as of 3/18/2022, which is about a 30% increase within the two years, but could also be attributed to the high utilization of the medical sector in the presence of COVID-19. So far, Siemens has seen only an accretive effect on their company, but with the unpredictability of the healthcare industry during the time of the pandemic, it is uncertain the percent increase will stay constant in the next five years. The deal, while overall has given a strong start to future research, is unpredictable because of the present state of the volatile medical sector. Siemens next step would be to try and acquire more cancer research companies and focus on creating a stronger presence in the sector, while major competitors like GEHealthcare are focusing on short-term COVID protocol. Deal Review | 18
GOODYEAR & COOPER TIRE By: Benjamin Wilson The Goodyear Tire & Rubber Company (NasdaqGS:GT) is an American tire manufacturer with a market cap of $3.9 billion. On February 21, 2021, it announced plans to acquire Cooper Tire & Rubber Company, another American tire manufacturer, for $3.2 billion. The terms of the deal were that Goodyear would pay $41.75 in cash plus 0.907x Goodyear shares per Cooper share. On February 19, 2021, Cooper shares closed at $43.84. The deal created an implied purchase price of $54.36 per share, representing a 24% premium. The rationale behind this horizontal acquisition was primarily to strengthen Goodyear’s leadership position in the global tire industry by combining two complementary brand portfolios with a comprehensive product offering. Goodyear also expected various financial benefits from the deal, including $165 million in cost synergies within two years, tax benefits with a NPV of $450 million, and onetime working capital savings of $250 million. It also expected various soft synergies, such as “additional opportunities for incremental sales growth” and “optimization of manufacturing footprints.” Furthermore, Goodyear expected the deal to be immediately accretive to earnings. Goodyear also expected various financial benefits from the deal, including $165 million in cost synergies within two years, tax benefits with a NPV of $450 million, and onetime working capital savings of $250 million. It also expected various soft synergies, such as “additional opportunities for incremental sales growth” and “optimization of manufacturing footprints.” Furthermore, Goodyear expected the deal to be immediately accretive to earnings.
www.reallygreatsite.com
Deal Review | 19
Merger
So far, this deal has been somewhat successful. Before the acquisition, Goodyear had an EPS of -$5.36, although this was largely affected by pandemic-related issues. Most recently, Goodyear’s EPS was $2.89, with a P/E of 4.9x. Furthermore, prior to the deal’s announcement, Goodyear traded at $13.90. Immediately after the announcement, it jumped to $16.82. Today, it trades at $14.06. In 2021, Cooper operations contributed $156 million to operating income with merely $7 million in costs. Furthermore, net sales growth in Q4 2021 was up 38% from a year prior. Excluding sales attributable to Cooper, this figure would have been 12%. Nevertheless, Goodyear has yet to realize most of the expected synergies relating to process and integration. Goodyear now expects roughly $250 million in cost synergies, compared to its initial estimate of $165 million.
Although I believe Goodyear executed this deal well, there are a few things I would have done differently. Primarily, I would have focused on immediately incorporating Cooper tires into Goodyear’s TireHub business. TireHub, a wholesale tire retailer targeted toward automotive retailers, still does not offer Cooper tires. Aside from attracting new demand for Cooper tires, it would also further integrate Goodyear’s and Cooper’s operations, creating additional cost synergies. Deal Review | 20
CERNER & KANTAR HEALTH By: Aryan Shelke Cerner, an informations company known for supplying health system technologies, had announced a strategic acquisition of Kantar Health, a subdivision of Kantar’s definitive company. Kantar likely supported the deal due to its health sector’s poor growth performance; the deal also provided Kantar with fast cash to fund R&D projects in its other sectors like Automotive and Energy. This news was announced on December 16th, 2020, and within 48 hours, the stock price jumped from $75.56 to $77.68, roughly a 2% increase. This deal was completed by JP Morgan and was financed and structured through $375 million in straight cash. Since there were no disclosed valuations of the health subdivision of Kantar, it is appropriate to use the times-revenue method to come to a just valuation. The times-method average multiple for the Services to the Healthcare Industry is valued at 2.00 of its annual revenue. The annual revenue of Kantar Health is approximately $150 Million. Therefore, it is reasonable to assume this subdivision is Cerner had deciphered these potential valued at $300 Million through simple synergies that they aimed to fulfill. Kantar calculations. This calculation suggests that Health provided numerous healthcare Cerner paid a $75 Million Premium for the applications that developed current company and its respective synergies. applications that Cerner already has. For Lathan and Watkins served as the buy-side instance, one evaluated synergy would be advisors for Cerner and provided financial the beneficial effect on the Cerner Learning and logistic data for the acquisition of Health Network. This acquisition would Kantar Health. allow Cerner to better engage with their clients and create better solutions to serve customer markets more effectively.
www.reallygreatsite.com
Deal Review | 21
Some soft synergies that would be viewed through such an action would likely be revenue synergies. With the addition of Kantar Health to Cerner Learning Health Network, the company projects an increase in sales volume with such technologies and
Merger
therefore increased revenue and market share. However, there were no outlined or implied hard synergies explicitly evaluated by the company. Looking at the present valuation of this deal, it can be assumed that this acquisition was not as fruitful as management made it out to be. The EPS has diminished by 27% within the last operational year, currently sitting at $1.84. The current price-to-earnings ratio is 33.09. Recent news about the company states that they have been building off its acquisition. They created a new unit with a concentration on life sciences and therapeutics. Current performance proposes that the company has experienced minimal changes in its growth even following the acquisition, as growth rates have stunted revenues and net incomes. Prior to its purchase, Kantar Health performed within many markets, including Non-U.S. The operations in these newer areas bring novel and uncontrollable risks, like costs of staffing, sovereign debt, and legal compliance costs. With increased risks, Cerner has been careful with its expansion and operations in these markets, delaying growth prospects promised in its initial announcement. Some final thoughts after reviewing this case may be working towards the new technologies and applications that Cerner can garner from Kantar. Both companies have a lot of potential and can create more personalized applications that allow for increased survival and retention rates. Currently, Cerner has developed a new program titled Cerner Enviza, which combines the strengths of Kantar Health and Cerner to catalyze the discoveries of new research, medical remedies, and therapies to promote the development of human healthcare. Deal Review | 22
NOVARTIS & THE MEDICINES COMPANY By: Greg Paxton On November 24, 2019, Novartis announced that it would be acquiring The Medicines Company at $85 a share, totaling a $9.7 billion acquisition being advised by J.P. Morgan and Goldman Sachs. Two days before the deal was announceNovartisd, Novartis was trading at $90.48, and three months after on February 21st, 2020 right before the COVID-19 pandemic, Novartis stock was trading at $96.76. This indicated that before the pandemic investors were optimistic about The Medicines Company acquisition. The rationale behind this acquisition was that The Medicines Company held valuable technology, but being a research firm didn’t have the capacity to massproduce the technology. Meanwhile, Novartis is a massive pharmaceutical company with the infrastructure in place to produce the product. This was a horizontal acquisition made by Novartis to expand their patent pool of cardiovascular products, specifically the patent of Inclisiran, a shot using mRNA instead of antibodies to greatly reduce cholesterol. In the company’s 10k they never explicitly stated a specific timeline on when the integration would be complete, however, they did state that when it comes to this acquisition “we may not be able to complete the acquisition in a timely manner or at all…” (Page 17). This, in addition to the loan they took out to fund this acquisition, indicates that there was an expectation that the integration would occur very fast, within a year or a year and a half, as they were essentially purchasing The Medicines Company for one product, but have run into some issues, most likely relating to some of the hard synergies that have made the integration more difficult than initially anticipated.
www.reallygreatsite.com
Deal Review | 23
Merger
When it comes to the actual deal structure, as stated earlier Novartis paid a price of $85 a share totaling a $9.7 billion acquisition. On Novartis’s own website they stated that they paid a 41% premium to acquire the company, as the fully diluted equity value was around $7.7 billion including outstanding stock and convertible debt. Novartis paid a total of $9.7 billion in cash. This is similar to how Novartis has funded some of their other deals, like their Xiidra deal where they had a $3.4 billion upfront payment. It seems like they don’t like to use long-term debt on these acquisitions (2019 10k). When analyzing how the company has performed since the acquisition, I am going to first begin by looking at the stock price. Its current stock price is $84.64, and Novartis has a 52week of $95.14. This is a -6.45% change in the stock price since before the acquisition was announced. However, I don’t believe that this drop in stock price is representative of the success of the deal. When looking at the P/E ratio, during the same period the P/E has dropped from 18.63 to 8.07 due to the earnings per share over doubling and the stock price dropping. I would also like to point out that the ROE and ROIC also increased drastically during this span. Finally, revenue has over doubled in the last couple of years, and I believe that this is at least somewhat due to The Medicines Company acquisition. Overall, I believe that this was a successful acquisition, but there were some flaws. Notably, I believe that Novartis overpaid significantly as they paid a premium of 41%, the company has even said before the deal closed when negotiating that the company isn’t worth $85/share. This, and the industry premium is around 36% according to Statista leads me to believe that they overpaid. Deal Review | 24