Covidien Ltd. continues to build its vascular global business unit with the acquisition of peripheral leader ev3 Inc.
Article preview from IN VIVO - June, 2010
By agreeing to pay $2.6 billion to acquire endovascular player ev3 Inc., Covidien Ltd. emphatically made two points. First, Covidien – now three years removed from its spin out of Tyco International Ltd. – is demonstrating a familiar pattern of growing through acquisitions, as it did under Tyco a decade ago. Second, Warburg Pincus and Vertical Group made a good call 10 years ago in backing the creation of ev3 to target vascular markets outside the coronary, at least in the eyes of one of the principals who started the company.
In building through buying, Covidien is working with a familiar playbook. As Tyco Healthcare Group, the company grew into a medical supply powerhouse through a string of sizable acquisitions, with each addition adding revenues and profits to the bottom line and new product lines that often shared little with the company's standing business. (See "What Makes Tyco Run?" IN VIVO , March 1999 [1999800050].) But, after surviving the scandal and controversy that engrossed its parent Tyco for many years, Covidien is no longer driven by instantly accretive acquisitions that merely add numbers to the bottom line. ( See "Tyco Healthcare: Surviving Scandal," IN VIVO , April 2004 [2004800068].) Instead, the company is evolving into a purer medical device company by developing products internally and, when the fit is right, acquiring companies that fit its broader strategy of moving into high-growth markets where it can be one or two in the list of competitors. (See "Spun Out, Covidien Rolls On," IN VIVO , May 2008 [2008800082].) It's that pursuit that convinced Covidien executives to make another recent deal, the divestiture of its sleep therapy products to privately held PH Invest, since that market is dominated by ResMed Inc. and Respironics Inc. (part of Royal Philips Electronics NV). [201010067]
The acquisition of ev3 isn't likely to put Covidien in the top spots in the peripheral and neurovascular markets, which the company values at $3.1 billion and $1.3 billion, respectively. However, the purchase of ev3's more than 100 current products and a pipeline of others under development certainly bolsters Covidien's peripheral offerings and gives it an initial foothold in the neurovascular market. But Covidien only entered this market a year ago with the acquisition of peripheral vascular companies Vnus Medical Technologies Inc. and Bacchus Vascular Inc. [200910049] [200910131] (See "Covidien Set to Compete in Vascular Business," IN VIVO , May 2009 [A#2009800084.])
By Tom Salemi
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