Hill-Rom Holdings actively seeking M&A; 'larger transactions' possible
Hill-Rom Holdings [HRC], the Chicago-based medical technology company, is looking at acquisition opportunities and could pursue more sizeable deals, according to CEO John Groetelaars.
On the 3Q18 earnings call held 27 July, he shared his initial observations as the new CEO. He said his primary objective is to enhance Hill-Rom’s global leadership position and drive topline growth via its diversified portfolio. Groetelaars said this will be supported by three strategic priorities: driving new product growth; increasing the focus on international growth, especially in emerging markets; and strategic M&A.
“We are successfully delevering the balance sheet, creating incremental capacity for larger transactions,” the CEO said. “We're actively looking for targets that support our category leadership positions through both tuck-in acquisitions and larger deals. Importantly, our M&A activities must be accretive to top line growth and provide attractive financial returns.”
In the Q&A session, Morgan Stanley’s David Lewis asked how active Hill-Rom will need to be to deliver mid-single-digit growth through external efforts.
Groetelaars said the company recently performed an internal research and development review of its projects in all three business units and it feels positive about the organic opportunities available to support category leadership.
“We are actively assessing M&A opportunities that would further enhance and support that category leadership in each of our businesses,” he said. “That pipeline is building, and we've recently increased our business development resources across each business unit by a significant amount, a multiple over what we have today.”
Later on the call, Stifel’s Rick Wise asked about the size of a potential larger acquisition. The CEO said Hill-Rom is pleased with its debt reduction efforts and expects leverage to approach 3.2x by year-end, which allows the company additional capacity to evaluate more sizeable deals.
He noted that the key consideration is to achieve or remain in number one or two position in its categories.
“We actually see a pretty rich environment of M&A opportunities that spans the scale,” Groetelaars added. “I won't be specific in terms of what size deal we would look at, but we do have increasing flexibility financially. And if the right strategic deal that fit our profile of financial returns and accretion were to come along that were across that spectrum of tuck-in to a larger scale, we feel ready to do it.”
Asked how high the company could stretch its leverage for the right deal, the CEO declined to provide an estimate, though he said it will consider reaching historic levels for the right returns and strategic fit. Groetelaars said the company can move the topline growth needle with small- to medium-sized transactions. He added that while Hill-Rom always looks at larger targets, it’s more difficult to determine their actionability and whether the right financial conditions exist to pursue sizeable deals.
Hill-Rom has three reporting segments: Patient Support Systems, Front Line Care, and Surgical Solutions.
Patient Support Systems provides specialty bed frames and surfaces and mobility solutions. Front Line Care includes respiratory care products and medical diagnostic monitoring equipment. The Surgical Solutions segment includes surgical tables, lights, and pendants used in operating rooms.
Hill-Rom announced in April the appointment of Groetelaars as CEO effective 14 May. The company said on 26 January that John Greisch, CEO at that time, had informed the board of his intention to retire during fiscal 3Q18.
The company’s last notable acquisition was the January 2017 purchase of Mortara Instrument, a Wisconsin-based provider of diagnostic cardiology and patient monitoring solutions, for USD 330m.
Jones Day was used for that deal. For the 2015 acquisition of Welch Allyn for USD 2.1bn, Hill-Rom used Goldman Sachs and Winston & Strawn.
Hill-Rom has a market capitalization of USD 6.6bn.