Will Hill-Rom Ruin Welch Allyn when they Buy them?

Note from Pat:
I love Welch Allyn and hate to see them on the brink of destruction.  Hill Rom is a dominant bed company.  They have proven to me that they cannot effectively manage companies in the greater healthcare arena.  They ruined MediqPRN.  Their acquisition of WatchChild was an unmitigated disaster.  I firmly believe that they will continue their pattern and make decisions that will cause much of Welch Allyn’s brain-trust to flee and their customer base to jump ship for more stable companies, is spite of the awesome technological releases of late.  My opinion only.   Pat

Hill-Rom to acquire Welch Allyn in $2 billion deal

(Story updated at 10:35 a.m. ET)

Hill-Rom, a Chicago-based medical equipment manufacturer, has announced it will acquire Welch Allyn, a Skaneateles Falls, N.Y.-based manufacturer of diagnostic and patient-monitoring equipment.

The $2.05 billion deal is expected to diversify publicly owned Hill-Rom’s portfolio, expand its international footprint and allow the capital equipment supplier to gain more revenue outside of the capital spending cycle. Welch Allyn, a family-owned company, has a leading presence in physicians’ offices, an area that will be important for Hill-Rom as more care shifts to outpatient settings.

The deal is expected to close before Sept. 30. Hill-Rom CEO John Greisch will serve as president and CEO of the combined company and certain members of Welch Allyn’s senior management will join the new, combined company.

The combined company is expected to be worth about $2.6 billion in revenue and be over 10% accretive to Hill-Rom’s fiscal 2016 adjusted earnings per share, and meaningfully higher thereafter, officials said. The company reaffirmed its guidance for the third quarter and fiscal 2015, expecting revenue growth of 13% to 15% in the quarter and 10% to 11% for the year.

Hill-Rom stock opened Wednesday at roughly $55.09 a share following the news, up $2.71, or 5%, from the closing price on Tuesday.

Annual cost synergies of at least $40 million are expected to come from the deal by fiscal 2018, with additional revenue synergy opportunities, Hill-Rom executives said. The company is expected to have roughly $110 million to $120 million in full-year ongoing capital expenditures.

Much of Hill-Rom’s revenues are tied to hospitals’ long-term capital-spending cycle for products such as beds, patient-handling equipment, furniture and stretchers. The life cycle for Welch Allyn’s products—such as thermometers, blood pressure cuffs and other point-of-care diagnostic equipment—is much shorter and is therefore expected to provide the combined company with a more steady revenue stream.

Welch Allyn will make up about 26% of the company’s pro forma revenue, which, combined with Hill-Rom’s existing surgical equipment and rental revenue streams, should provide the company with steady cash flow, Greisch said during a conference call. Acute-care capital equipment will still account for 31% of the combined company’s revenue.

Geographically, Welch Allyn has presence in Hill-Rom’s strongholds of France and Germany, as well as the U.K., but otherwise has limited international infrastructure, Greisch said. Hill-Rom believes it can accelerate international growth for Welch Allyn’s products; the combined company is expected to earn about 63% of its revenue from North America, 21% from Europe and 16% from emerging markets and other regions.

Adam Rubenfire

Adam Rubenfire covers breaking healthcare news and supply chain for Modern Healthcare. His beat responsibilities include capital equipment, group purchasing organizations, food service and general medical supplies. His work has appeared in the Wall Street Journal, Automotive News and Crain’s Detroit Business. He has a bachelor’s degree in organizational studies from the University of Michigan. He joined Modern Healthcare in 2014.

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