Bausch & Lomb Moves into Private Sector

BUSINESS NEWS

Diversified eye-care company Bausch & Lomb Inc. (Rochester, NY) is set to go private. The transaction, which follows on the heels of the $10.9 billion acquisition of orthopedics manufacturer Biomet Inc. (Warsaw, IN) by a consortium of private equity investors, has prompted discussion among industry observers as to whether the medtech industry can expect to see more publicly traded companies going private.

Last May, Bausch & Lomb announced that it would be acquired by private equity firm Warburg Pincus LLC (New York City). In a deal valued at $4.5 billion, the investment banking firm offered $65 per share, or $3.7 billion, in addition to taking on $830 million of Bausch & Lomb debt. The deal was unanimously endorsed by Bausch & Lomb's board.

However, just days after the deal was announced, Bausch & Lomb received an unsolicited bid from Advanced Medical Optics (AMO; Santa Ana, CA). The $4.2 billion proposal was based on $75 per share—$45 in cash plus $30 in AMO stock—for each Bausch & Lomb share.

Although Bausch & Lomb acknowledged that the AMO offer could result in a superior proposal, company management appeared overtly cool, if not hostile, to the proposal. It was also opposed by one of its major shareholders, ValueAct Capital Partners LP (San Francisco), which holds a nearly 15% stake in the company.

AMO withdrew its offer in early August, clearing the way for the closing of the Warburg Pincus deal.

Thomas Gunderson, a managing director and senior medtech analyst with Piper Jaffray & Co. (Minneapolis), says the idea of more medtech companies going private is intriguing. "There's an excess of private equity funds and a paucity of good opportunities," he says. "Medical technology is increasingly recognized as one of those sector opportunities."

Gunderson says there are a number of incentives for companies going private. "By going private, many medtech companies could realize significant cost savings while having a far greater ability to focus on long-term goals and objectives—rather than worrying about the next quarterly report," he says.

However, Gunderson says, whatever level of enthusiasm toward privatization that existed among medtech companies just a short time ago has likely been tempered by the behavior of the credit markets in recent weeks. "Right now, we need to wait for the dust to settle," he says.

Charles J. Johnson, medical device group leader at Choate, Hall & Stewart LLP (Boston), says, "While there is a great deal of private equity dedicated to the medtech space, most of the deals represent investments in privately held companies. Although the savings in going from a public to a private company go straight to the bottom line, I don't foresee any significant increase in the number of publicly traded companies making that move. By and large, in this sector, private equity will seek out private firms."

Dow Jones VentureOne (San Francisco) recently reported that venture capital investment in medtech firms reached an all-time high in the second quarter of this year, with 75 deals valued at $1.05 billion, a 58% increase over the year-ago quarter.

Ogen Gurel, MD, chairman of the Aesis Research Group LLC (Chicago), a life sciences consulting firm, says, "Whatever boom there was for private equity in life sciences deals may now have peaked as a result of recent market turmoil—and its implications." Looking ahead, Gurel sees more U.S. life sciences companies going public in overseas markets—particularly London.