Varian hatches plans to acquire Magnex on heels of Digilab deal

For the second time in less than a month, Varian of Palo Alto, CA, a major provider of NMR and MR instruments, has announced a corporate acquisition. The latest involves U.K.-based Magnex Scientific, a leading manufacturer of ultrahigh-field MR magnets. Varian's increasing dependence on Magnex products, particularly MR magnets, made the purchase of Magnex a logical one, according to Varian executives. Its acquisition promises to generate external revenues of $15 million to $18 million during the next 12 months.

"Magnex has become a larger and larger part of the systems we sell, especially in imaging," said Garry W. Rogerson, president and CEO of Varian, which has more than 4000 employees. "And it's become a significant part of the cost. At the same time, we want to design easier to use systems. To do this, we need to have much tighter control of the magnet design and cost structures."

The planned Magnex acquisition, announced Oct. 11, is expected to close in mid-November. The announcement of the deal came on the heels of Varian's acquisition of molecular spectroscopy assets of Digilab of Randolph, MA. Combined, the two deals are worth about $46 million. There may be up to $100 million in acquisitions coming in the years ahead, according to Varian officials.

While the implications are hazy, at least one player anticipated little effect on the magnet community.

"Near term, I do not expect any impact on the community," said Glenn H. Epstein, chair and CEO of Intermagnetics General.

He added that that could change a year or two down the line.

"The long-term industry trend has been one of consolidation and concentration, driven primarily by the need for economy of scale to meet cost/price objectives and security of supply for technical differentiation and market position purposes," he said.

In recent years, a number of acquisitions have punctuated the MR industry. Those include Siemens Medical Solutions' acquisition last year of Oxford Magnet Technology (SCAN 11/26/03) and Intermagnetics' acquisition earlier this year of Invivo (SCAN 2/11/04) and MRI Devices (SCAN 6/2/04).

David Rayner, managing director of Magnex, which also supplies magnets to Siemens and Philips, concurred with Epstein in his assessment of the Varian/Magnex deal.

"I do not expect the acquisition will have a major effect on the magnet community," he said. "Magnex will continue to offer its full range of NMR, MR, and FTMS (Fourier transform mass spectroscopy) magnets to its existing customer base."

Rogerson, however, cited one possible effect on the magnet community at large, defined as any company that buys and uses scientific and medical grade magnets.

"There is a positive influence on the magnet community in that we'll be able to build better and easier-to-use magnets," he said.

Varian's relationship with Oxford Instruments will not be affected. Oxford will continue to supply Varian with high-field magnets, Rogerson said. Oxford supplies vertical-bore magnets for NMR, while Magnex specializes in horizontal magnets designed to accommodate animals.

In announcing the deal, Rogerson noted that Varian has some challenging internal goals. These include growing the core business to roughly $1 billion in annual revenue within three years. (Sales in 2003 totaled about $848 million.)

Additionally, the company hopes to expand its operating margins by nearly 50%. To do that, the company will boost its R&D activities and seek new acquisitions. Rogerson conceded that strategists are putting substantial emphasis on buying companies.

Over the next three years, Varian's goal is to complete about $150 million in acquisitions, he said. The Magnex acquisition figures to be a key one, largely because of the technology the company brings to the table.

"A competency we have wished for, but did not have, is magnet technology. This is essential for MR imaging, NMR, and certain mass spectroscopy technologies," he said. "If we are to integrate the magnet into the total system, we need to have control over the development and cost of the magnet."

Rogerson noted that Magnex ships about $10 million worth of magnets to Varian-much of it for MR. He described Magnex as one of the few dedicated magnet manufacturers in the world and called it a world leader in the design and manufacture of MR magnets, a company that has shipped some of the largest and most powerful magnets available.

Meanwhile, Rogerson said Varian will establish an imaging laboratory in the U.K. in an effort to evolve technology related to functional imaging applications.