Boston Scientific's high-growth endoscopy business will get a boost from the company's acquisition of EndoChoice Holdings.
On Tuesday, Boston Scientific announced it is acquiring Georgia-based EndoChoice Holdings for approximately $210 million. The move is expected to bolster the company's high-growth endoscopy business and industry experts are giving the transaction a thumbs up.
EndoChoice is focused on gastrointestinal devices, imaging, and services. Its products include forceps, probes, retrieval devices, and needles. Its diagnostics business includes H. pylori and colorectal cancer screening tests, while its infection control portfolio includes scope reprocessing products, brushes, gowns, and other accessories used for endoscopy procedures.
"The addition of EndoChoice products and services to our portfolio supports our strategy to provide comprehensive solutions to gastroenterology caregivers and the patients they serve," said Art Butcher, Boston Scientific senior vice president and president of endoscopy, in a press release. "We expect the acquisition to expand our leadership into new categories in the endoscopy market, and to drive strong, continued growth of our endoscopy business."
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Boston Scientific reported 11% year-over-year growth for its endoscopy business in the second quarter. Michael Mahoney, chairman, president and CEO, explained on the earnings call that this strong growth is due to a combination of new products and a strong market with fewer competitors. "[Endo is] really an incredibly high-performing business and it has been for a number of year. And they really have just continued to grow and expand," Mahoney said, according to a Seeking Alpha transcript of the earnings call. He added, "We're intentionally focusing on investing greater in faster growth markets and faster growth businesses."
The transaction is expected to close in the fourth quarter and be breakeven in 2017 and accretive afterward on an adjusted earnings per share basis. According to the company release, Boston Scientific is deciding on strategic options for EndoChoice's Full Spectrum Endoscopy (FUSE) colonoscope.
Wells Fargo senior analyst Larry Biegelsen wrote in a September 27 research note, “The move to acquire EndoChoice should help strengthen BSX's presence in the ASC (ambulatory surgery center) portion of the market as BSX's current endoscopy portfolio is more focused within the hospital segment."
Joanne Wuensch, BMO Capital Markets analyst, wrote in a research note, "To us, this transaction makes sense, and continues the tuck-in variety that has bolstered BSX’s franchise."
Indeed, Boston Scientific has not gone the way of the mega-merger, as other major medtech companies like Medtronic and St. Jude have done. Instead, the company has quietly added to its areas of strong growth, including with its July acquisition of Cosman Medical, an addition to its neuromodulation business.
This is in line with a Frost & Sullivan analyst's take on Boston Scientific's potential strategy. Venkat Rajan, industry manager for medical devices and global director of research at Frost & Sullivan, told MD+DI back in May, “This is highly speculative but I think the way Boston Scientific could go about M&A is that instead of a big fish, you might see a lot of small to mid-sized transactions that may in aggregate approach those large-deal dollar sizes. So when everybody is zigging it makes more sense to zag."
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