Philips Continues Buying Spree

Philips Electronics announced on Friday that it will acquire Respironics for $66/share or about $5.13 billion, a 24% premium.   This is the third and largest healthcare-centric acquisition that Philips has made in December.  The first was Emergin, a small company (~100 employees, estimated $18 million in 2007 sales) and provider of medical alarming systems for hospitals.  The second, Visicua a supplier of systems for remote monitoring of intensive care units, was acquired for $430 million.

All three acquisitions are the manifestation of Philips’ “Vision 2010” strategy, which was announced in early September. As part of this new vision for the company, divisions have been realigned into three distinct groups, lighting, consumer lifestyle and healthcare with planned investments to build these three into market leading organizations.

Within healthcare, Philips combined its separate Medical and Consumer Health divisions into one entity. While the first two acquisitions are in support of the former Medical group, the Respironics acquisition will provide solutions that span both the hospital/provider market and the home healthcare market.

The acquisition of Respironics, while appearing expensive at first blush, is a brilliant move and will, if executed properly, reap significant benefits for Philips for a number of reasons including:

• Fills a gap in Philips current product portfolio allowing them to deliver to market a more complete solution suite.
• Respironics is on a tear, with revenue growth in the mid-teens and margin growth of nearly 20% that shows no signs of slowing. They also appear to be a very well managed company and Philips has publicly (and wisely) stated they foresee no layoffs as a result of this acquisition.
• Respironics, a US-based company has only recently made significant in-roads in overseas expansion, which represents roughly 31% of sales in FY06. Philips, with its broad international distribution network, could see some quick gains by broadening Respironics international presence.

Philips is positioning itself well for the inevitable move to deliver far more healthcare services, via telehealth, within the home rather than at a hospital or physician practice.  One of the nation’s largest, integrated healthcare providers, Kaiser-Permanente, for example is exploring new ways to deliver healthcare at the home to minimize the need for building more facilities.  Several studies have also been recently released that clearly demonstrate the efficacy of telehealth.

With the minor exception of the partnership between GE and Boston Scientific, Philips’ major competitors Siemens and GE have been relatively silent, leaving one to wonder if they lack the vision or have simply chosen to head down a different path.  My guess is that they are watching Philips’ moves with a wary eye and 2008 may well see a number of follow-on acquisitions by these companies to keep pace with Philips.