July 23, 2024
A recent media report suggests Embecta, the company that spun out of BD in April 2022, is exploring a potential sale.
Citing two unnamed sources, the Financial Times reported that the company has hired advisors from Centerview Partners to assess a potential sale. According to the article, Embecta's "lackluster" stock performance, low market value, and similarity to other companies that have recently attracted buyout interest could make it a good acquisition candidate. The media outlet said Embecta did not respond to a request for comment and Centerview Partners declined to comment.
"While we do not know whether the report is true, we are not surprised by the suggestion," Marie Thibault, a medtech analyst at BTIG, wrote in a report Sunday.
Thibault noted that Embecta's stock price fell nearly 50% between January and May, with little news to explain the weakness. The analyst also wrote that a strong fiscal second-quarter report in early May drove a sharp recovery in the shares, though the stock has remained in the low- to mid-teens in the weeks since. She also pointed to the fact that Embecta trades well below its peers on any valuation measure.
"As we have written before, we think this is likely due to investor uncertainty on the company's eventual margin profile and [free cash flow] generation capabilities as it eyes the T2D patch pump market, ability to compete in the patch pump market, lack of sales growth, and potential risk around developments with long-acting insulin and GLP-1s," Thibault wrote.
But there is also plenty to like about Embecta as an asset, she noted, including the company's track record of quarterly beats, its relatively healthy operating margins compared to may medtech peers, its market leadership, global presence, dividends, and the nearly complete separation process.
"While underscoring that we do not know if the Financial Times report is true, we think Embecta could be appealing to private equity or companies evaluating a broader reach, scale, and manufacturing capabilities in medical supplies, diabetes, or drug delivery, among others," Thibault wrote.
Breaking up is hard to do
Neil Sedaka was right about breaking up being hard to do, and his lyrics appear to be especially true for large spinoff companies.
In addition to the above-mentioned struggles Embecta has faced in its two years as a standalone company, ZimVie has also struggled to find its footing since spinning out of Zimmer Biomet.
ZimVie originally spun out as a dental implant maker and spine company, but sold its spine business to H.I.G. Capital a few months back in a deal valued at $375 million. Earlier this month, Bloomberg reported that ZimVie is exploring alternatives after receiving interest from potential buyers, which include buyout firms and companies in the industry.
GE HealthCare has also had some ups and downs since spinning out of GE in January 2023. While the company came out of the gate hot on the M&A trail, quarterly earnings have been somewhat of a sore spot. Ryan Zimmerman, another medtech analyst at BTIG, recently called GE HealthCare out as a "better not miss" stock for the second quarter, given its disappointing first-quarter earnings report.
"When we consider the step-up in growth in 2H needed to make guidance, a 2Q miss could be devastating," Zimmerman wrote.
An earlier report from Zimmerman explains that despite the first-quarter miss, GE HealthCare reaffirmed its full year 2024 guidance of 4% organic growth and adjusted earnings per share of $4.20 to $4.35, meaning the company needs to see at least 7% growth in the second half of the year to hit the target.
"Investors never like a back-half set-up and order growth has been soft the past three quarters providing limited line of sight to the 7% needed to hit numbers," Zimmerman wrote. "At the same time, [GE HealthCare] will face easing order comps through the rest of FY24, benefit from economic stimulus in China, and new products in ultrasound."
Looking at medtech spinoffs on a more historic basis, Abbott's pharma spinoff, completed in January 2023, remains among the most successful spinoffs in the industry. Today, AbbVie is larger than Abbott, with a market cap of over $304 billion.
About the Author
You May Also Like