Sometimes, the heart just wants what it wants.
Medtronic, a maker of heart-rhythm devices, announced on Monday that it’s paying $1.1 billion for HeartWare International, whose own devices reduce surgical invasiveness when treating patients with heart failure.
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The $58-a-share offer represents a whopping 93 percent premium to HeartWare’s closing price Friday and is more than 40 percent above where analysts expected the shares to trade in a year — not to mention, the transaction isn’t expected to be accretive for the next three years. Sounds costly — but it’s more of a bargain than those figures may suggest.
The deal values HeartWare at 4.2 times its trailing 12-month revenue. That’s a discount to the 6.6 times sales St. Jude Medical paid for HeartWare rival Thoratec — a great result, considering Thoratec and HeartWare control the $800 million global ventricular-assist-device, or VAD, market.
Medtronic said this month that its targeted annual M&A spend is $1.5 billion a year. By adding HeartWare to its pending $350 million acquisition of Smith & Nephew’s gynecology business, it’s nearly at that total. That’s not to say its dealmaking days — now 13 bite-sized acquisitions since the start of 2015 — are over. Acquisitions are one reason Medtronic’s stock reached an all-time high this month.
As for HeartWare’s shareholders, not all of them are celebrating. The offer price is well below the record $104.66 reached by the stock in January 2014, as well as the 12-month high of $90.71 achieved last July. Even after HeartWare rallied Monday on the deal news, the shares were still more than 20 percent lower than they were a year ago.
Still, it’s a quicker fix than HeartWare’s investors were in for, given what analysts were expecting the stock to do on its own amid slowing growth prospects and a delayed clinical trial.
All in all, it looks like a sweetheart deal for both sides.
