The imaging industry has been on a consolidation binge. Smaller companies have become fodder for multimodality giants as major vendors seek economies of scale by adding new modalities or increasing their market share in existing ones.At the
The imaging industry has been on a consolidation binge. Smaller companies have become fodder for multimodality giants as major vendors seek economies of scale by adding new modalities or increasing their market share in existing ones.
At the forefront of this binge is Royal Philips Electronics. In one week alone, the Dutch firm has committed more than $2 billion to purchase two well-known players in the medical imaging field. Philips announced on Nov. 13 that it will pay $426 million to acquire ADAC Laboratories. On Nov. 17, Philips announced its intention to buy the Healthcare Solutions Group (HSG) of Agilent Technologies for $1.7 billion in cash.
Philips spent $1.2 billion in May to gain a 60% stake in MedQuist, a medical transcription firm, and $800 million in October 1998 to acquire ultrasound provider ATL. More recently, the Dutch company formed a strategic alliance with data storage giant EMC to sell EMC's systems and software with its own Inturis PACS.
Philips financed much of this year's buying spree by liquidating its holdings in telecommunications giant JDS Uniphase. The deals are expected to boost Philips even further into the big leagues of multi-modality imaging. The ADAC purchase gives Philips the nuclear medicine and PET systems businesses it has lacked, while the Agilent acquisition would tip the scales in favor of Philips in the battle for world leadership in diagnostic ultrasound. Just weeks ago, it appeared Siemens held claim to the title of global ultrasound leader, following the consummation of its union with Acuson.
Philips' moves are particularly critical given the industry consolidation that has occurred in diagnostic imaging this year. Healthcare groups and hospitals worldwide are asking for a complete package of products, according to Ben Geerts, a corporate spokesperson for Philips.
"There is lots of concentration in medical systems in the world where (specialty companies) are being taken over by multimodality companies," he said. "Our firm is doing the same."
Agilent's decision to sell was precipitated by market conditions, according to Ned Barnholt, Agilent president and CEO. But rumors of an impending buyout had been swirling around the company for much of this year. Following two consecutive quarters of lower-than-expected financial results, Agilent cut 650 jobs and began consolidating its manufacturing processes in August.
Many on Wall Street believe the divestiture of the HSG has been coming for some time. Questions about the long-term viability of Agilent's healthcare division predate its spinoff from Hewlett-Packard last year, with some investors insisting that the firm sell off what is considered a noncore, low-margin business.
"In order to meet customer needs in today's healthcare marketplace, we either had to make a commitment to invest heavily in HSG's future or sell the unit to a company with a complementary business and a commitment to invest in ongoing success," Barnholt said.
For decades, Agilent has been the uncontested leader in global sales of echocardiography systems. So large was this customer base that the company at various times led all diagnostic ultrasound companies in revenue, despite only modest sales of radiological systems. Philips adds this huge base to the one it obtained two years ago with its acquisition of ATL.
The company also gains a strong foothold in two markets outside imaging-patient monitoring equipment and defibrillators-areas that also engage its rivals GE and Siemens. GE entered the patient monitoring market two years ago with the acquisition of Marquette Medical Systems, a long-time Agilent competitor. Siemens also has a substantial offering of patient monitoring products. Both firms have used nonimaging products to support sales efforts aimed at disease management. Philips may use the Agilent acquisition to do the same.
"By combining the two companies' ranges of products and services, we will be able to offer our customers more disease-specific solutions, helping to improve patient outcome and efficiency," said Hans Barella, president and CEO of Philips Medical Systems.
© 2000 Miller Freeman Inc.
11/29/00, Issue # 117, page 1.