Originally Published MX July/August 2005
EDITOR'S PAGE
Risk and Return
To reward long-standing investors and develop new routes for growth, medtech companies depend very heavily on being acquired by other organizations. But mergers and acquisitions are inherently risky transactions. A lot of things can go wrong to make a deal go sour, and even completed agreements have no guarantee of success.
Executives who want to make their deals succeed must work hard to set the groundwork. Sellers must ensure that their financial and regulatory affairs are in order. Buyers must conduct extensive due diligence to verify that they will receive appropriate value for their investment.
But sometimes even the best-crafted deals can be overtaken by events. That's one view of the recent disclosures and product recalls affecting Guidant Corp. (Indianapolis), which is in the midst of being acquired by Johnson & Johnson (New Brunswick, NJ) for an industry record $25.4 billion (see Business News).
In the middle of June, industry association AdvaMed (Washington, DC) responded to media reports of Guidant's troubles, stating that "AdvaMed and its member companies are committed to prompt, appropriate, and effective notification of patients, physicians, and the public when problems arise that may affect patient safety." Nevertheless, the association intends to review its policies and recommend revisions "where appropriate." The association is also working with the Heart Rhythm Society (Washington, DC) on a September conference that will examine patient-notification issues specific to heart-rhythm devices.
It isn't clear whether J&J executives consider Guidant's issues serious enough to warrant renegotiating the proposed acquisition. To keep the deal on track to close in the third quarter of this year, however, that's a question that will likely be addressed soon.
In the meantime, other medtech companies would do well to observe J&J's due diligence processes closely. Future M&A transactions will almost certainly come under similar scrutiny.
Copyright ©2005 MX
