Medtronic’s HeartWare Acquisition Aimed at Consolidating its Position in the Heart Health Devices Market

2016-06-28 | Future Market Insights | Healthcare, Pharmaceuticals and Medical devices

Heart failure remains a pervasive, long-term medical condition that requires consistent medical attention and self-care. This ailment is especially more pronounced in America, where one out of every four deaths is caused due to heart diseases. Every year, over half a million Americans suffer from heart attacks, with stress and obesity being a key precursor in many causes that lead to cardiovascular issues.

HeartWare International Inc., a medical diagnostics company based in Framingham, MA, revolutionised the clinical and surgical approach for treating heart failures by introducing a device assisting cardiac circulation. Years after the medical breakthrough, HeartWare is now being acquired by Medtronic, one of the world’s largest medical device manufacturers.

Medtronic, a company headquartered in Dublin, Ireland, manufactures medical devices and operates from Fridley, MN. On June 27, Medtronic announced that it will acquire HeartWare International Inc. for US$ 1.1 Bn, bolstering its range of heart health products.

HeartWare is the foremost leading company in the global market for ventricular assisting devices, which are commonly known as VAD pumps or VADs. One of the main factors leading to this acquisition is Medtronic’s prediction of the growth in global VAD market.

The Deal

Currently valued at US$ 800 Mn, the global market for VAD and other heart failure devices is expected to rise, according to Medtronic. HeartWare being the best in manufacturing VAD pumps and diagnostic tools has played a key role in influencing Medtronic to acquire the company. Medtronic will be paying US$ 58 per share for HeartWare, which closed on US$ 29.98 price on Friday. Medtronic’s offer will give HeartWare a 93% premium over its closing price on Friday. Medtronic is planning to close the deal by the end of its second fiscal quarter, with the tentative time for completing the acquisition being the end of October.

Why Medtronic acquired HeartWare

The deal has given a rise to speculations that Medtronic is overpaying HeartWare, and this assumes greater significance owing to the fact that the latter suffered a US$ 72.8 Mn loss on a US$ 276.8 Mn revenue at the end of the recent fiscal year. But, Medtronic is not stepping down by looking at these figures as HeartWare’s acquisition is expected to play a key role in Medtronic’s expansion in global market for heart failure devices. Foraying into the global VAD market with HeartWare acquisition is likely to boost Medtronic’s revenues in the current fiscal year.

Another key factor that has prompted Medtronic to acquire HeartWare is the latter’s line of HVADs. The HVADs, manufactured by HeartWare, are devices assisting regular blood flow to patients suffering from heart disorders. HeartWare’s success in its clinical trials and the effectiveness of its devices in actual surgeries involving patients diagnosed with end-stage heart failures is also thought of being a key factor for the acquisition

In January last year, Medtronic acquired Covidien for US$ 50 Bn, expanding the Medtronic market capitalisation to an estimated US$ 100 Bn. Medtronic’s fiscal year ended with US$ 3.54 Bn earnings on a US$ 28.83 Bn revenue. The immediate effect of Medtronic taking in HeartWare is significantly visible with a staggering 92% soar for HeartWare stocks on Monday, the day  news of the acquisition was made public

Overall, the deal is expected to be a wise strategic move by Medtronic to consolidate its position in the heart health devices market. Whether the markets and end-users react to the deal as per Medtronic’s vision remains to be seen.