Why Baxter is on the Prowl for Acquisitions

CEO Joe Almeida said M&A deals, particularly smaller tuck-in acquisitions, will continue to play a key role in Baxter's growth strategy.


Baxter International realized its strongest growth of the year in the third quarter, CEO Joe Almeida said, and he noted that the company's acquisition of Claris Injectables Limited was among the drivers of that growth. Baxter added Claris to the pharmaceuticals side of its business in July and the $625 million deal is expected to provide a foundational growth platform for the company.

According to Seeking Alpha transcripts of the third-quarter earnings call, Almeida gave analysts reason to expect more acquisitions to fuel the company's growth going forward.

"M&A deals like Claris will continue to play an important role in building out our portfolio and pipeline across our key growth categories and adjacencies," Almeida said.

Baxter doesn't have an M&A strategy per se, he said, but M&A is coupled together with the strategy of each business at Baxter. As a company, Almeida said Baxter plans to expand inorganically across all regions, including the U.S., Europe, and Asia, particularly in China.

"And we have the people being put in place to be able to scout those opportunities. We have an M&A team that is focused on bringing more deals," Almeida said.

The company is more likely to pursue smaller tuck-in deals though, as Almeida said larger deals more difficult to integrate, and tend to have a marginal return on investment.

"So, we are focusing on molecule purchasing," he said. "We have a lot of those in process right now, tuck-ins, product lines from companies that are divesting, things such as this to augment our growth in the long-term, and augment our four pillars of growth in our business, which is the pharmaceutical business, the critical care, the surgical, as well as parts of our renal area, primarily areas that will be beneficial to us outside the U.S. in terms of buying clinics and things like that."

Baxter's strong third-quarter results and optimistic growth outlook is particularly impressive given where the company was not that long ago before Almeida joined the Deerfield, IL-based company in early 2016. The former Covidien CEO took the reins at Baxter following a particularly rough year for the company, but under his leadership, Baxter has done a 180.

During 2015, a number of negative factors cut into Baxter's profitability, including currency exchange impact, regulatory and manufacturing issues, generic competition for one of its branded cancer drugs, and costs related to the spin-off of its biotech business, now known as Baxalta. And convincing the market of Baxter's stand-alone prospects appeared to be an uphill battle.

But Baxter's employees were ready to embrace change when Almeida came on board, which he said previously helped the company transform. That transformation has focused on the portfolio and innovation management, operations, and capital allocation.

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