Baxter to acquire US medical equipment group Hillrom for $12.4bn

Mergers & Acquisitions updates

Baxter International, the medical technology group, has agreed to buy rival equipment company Hillrom for $12.4bn, including debt, the latest in a series of megadeals in the medical devices and healthcare industry.

Hillrom shareholders will receive $156 a share in cash, a 26 per cent premium to the company’s closing stock price on July 27, when Bloomberg News first reported that an initial takeover approach from Baxter had been rebuffed.

The Chicago-based company had originally rejected a $144 a share offer from earlier this year, said a person briefed about the matter.

Healthcare and pharmaceutical mergers and acquisitions have more than doubled in 2021 compared with a year ago, when the sector was badly hit by the effects of the pandemic. Since the start of the year, about $570bn worth of deals have been agreed, according to data compiled by Refinitiv.

M&A in the medical devices sector has been particularly active this year, with a consortium of private equity groups led by Blackstone, Carlyle and Hellman & Friedman buying a majority stake in Medline for about $34bn, including debt.

Dealmaking in the sector has sped up over the past few years, including Abbott’s $25bn takeover of St Jude and Medtronic’s $42.9bn acquisition of Covidien, as companies seek to build scale as industry margins become thinner.

Overall M&A activity, across sectors, has also been booming since the start of the year, with nearly $4tn worth of transactions agreed so far, an all-time record and more than double the total for all of 2020.

Companies that were forced to drop deal plans last year due to coronavirus have rushed back to the M&A table in recent months, partly because many chief executives are concerned about a possible future rise in interest rates.

Borrowing costs currently are at historic lows, which makes financing transactions cheaper than usual.

Baxter said on Thursday that it would finance the transaction through a combination of cash and debt financing from JPMorgan Chase and Citibank. The Deerfield, Illinois-based company will have net leverage of approximately 4.2 times earnings before interest, taxes, depreciation and amortisation of the combined companies.

The combination of Hillrom, which makes healthcare equipment varying from low-tech hospital chairs to more sophisticated wearable electrocardiographs and operating tables, and Baxter, which focuses on critical care, nutrition and surgical products, could generate $250m of annual pre-tax cost synergies by 2024.

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