Market Overview

Covidien to Buy SuperDimension for $300 Million

It was revealed on Monday that Covidien (NYSE: COV) is set to acquire privately held medical device maker superDimension for approximately $300 million.

According to Fox Business, the deal will expand COV's offerings in diagnosing and treating lung diseases, with the aim of reflecting stronger focus on devices.

The deal is expected to close in the second quarter, and it may result in Israel's superDimension being eligible for milestone payments further down the line.

SuperDimension develops and markets navigation technology for lung-cancer diagnosis, and it is expected to benefit from COV's global marketing channels.

The technology employed by the company is called electromagnetic navigation bronchoscopy, and it represents roughly 4% of the market for lung cancer biopsy in the United States, according to J.P. Morgan analyst Michael Weinstein, talking to Fox Business.

"There are about 375,000 lung biopsy procedures performed annually, with the market growing in the mid-to-high single digits," Weinstein said. SuperDimension is in the early stages of capturing this market, he said, but "we see the potential for the company's footprint to expand significantly over time under Covidien."

In a research report published on Monday morning, Deutsche Bank said that Covidien announced it would acquire superDimension, an Israel-based manufacturer of minimally invasive interventional pulmonology devices, for $300M. “We think the deal makes sense and will tuck in nicely into Covidien's existing minimally invasive surgical portfolio. Of note, COV noted the strength of its underlying business should offset the majority of dilution, which reaffirms our belief that business is good.”

Bank of America Merrill Lynch said that the deal, which is subject to regulatory approval, is expected to close around June 30th. SuperDimension's i-Logic electromagnetic navigation bronchoscopy system has about 4% share of the US lung biopsy market currently. About 400 units have been placed in the US. Sales are in the $30mm range, growing 20-30% annually.

“Each unit is priced at roughly $150-$200k and the disposable catheter costs the hospital roughly an additional $1,000. The market opportunity for US disposable sales alone is estimated in the $200mm range, growing at mid to high single digits according to COV's estimates.”

Morgan Stanley said that Covidien's Endomechanical growth is slowing, product innovation is more iterative, and additional innovation through acquisition was likely. Covidien's purchase of superDimension is an attempt to fuel growth long-term by leveraging a platform technology in the lung biopsy segment that is expected to grow in the mid- to high-single digits.

“Covidien has agreed to acquire superDimension, a private company that develops minimally invasive interventional pulmonology devices, for $300mn (10x sales before additional earn-out payments). The transaction is not expected to materially impact sales in FY12, but should be slightly dilutive to EPS.”

Posted-In: Bank of America Merrill Lynch Deutsche Bank Morgan StanleyNews M&A Analyst Ratings Tech Best of Benzinga

 

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