3 Benefits of Siemens Healthineers’ $16.4B Acquisition of Varian Medical

M&A Analysis: 3 Benefits of Siemens Healthineers $16.4B Acquisition of Varian Medical

What You Ought to Know:

– Siemens Healthineers and Varian Medical announce a $16.4B deal in an all-cash transaction on 2nd August 2020.

– Deal anticipated to shut in 1H 2021.

– Varian Medical will keep its model identify and function “independently”

– Siemens AG will drop holding in Siemens Healthineers from 85% to 72% as half of the transaction.


Information of the deal between Siemens Healthineers and Varian Medical may have caught many trade onlookers off guard on Sunday night. Flotation of the Healthineers enterprise phase on the German inventory market raised a number of eyebrows again in 2017, however with Siemens AG retaining 85% of the inventory, many observers postulated little change to the fortunes of the well-known enterprise; an unwieldy technical {hardware} chief going through an uphill battle in an more and more digital market.

Nonetheless, the Varian deal has simply made it very clear that Siemens Healthineers has emerged from the IPO with massive ambitions and firepower to match. So, what does this imply for the long run?

Win-win?

Three advantages of the deal are clear at first look. Firstly, Siemens Healthineers might be including a further mature product set to its already robust modality {hardware} line-up. Radiation Remedy {hardware} (linear accelerators, or linac), is the lion’s share of Varian’s enterprise, for which it’s market chief holding over 55% of the worldwide put in base in 2019. Combining this with Siemens’ in depth enterprise in diagnostic imaging and diagnostics will create a product line-up that no main peer can as we speak match. It additionally opens up alternatives for offering “end-to-end” oncology options (imaging, diagnostics, and remedy) beneath one vendor, a robust play in a market the place well being suppliers are more and more trying to restrict provide chain complexity and discover long-term managed service offers with fewer distributors.

Secondly, Varian is working in a comparatively unique market, with its solely fundamental competitors coming from market friends Elekta and Accuray Inc. Demand for linacs has been persistently enhancing in recent times, with Varian suggesting solely two-thirds of the Whole Addressable Market (TAM) for Radiation Remedy has been catered for thus far. The acquisition, due to this fact, opens a brand new development marketplace for Siemens Healthineers to offset the gradual slowing demand for its superior imaging modality (MRI, CT) enterprise, a extra aggressive and mature phase. The adoption of Radiation Remedy in rising markets corresponding to China and India can be properly behind superior imaging modalities, providing new greenfield alternatives close to time period, a rarity in most of Siemens Healthineers’ core markets.

Thirdly, Varian has grown to a measurement the place progressing to the following stage of development would require substantial funding in operations and new market channels. Income development during the last 5 years has been patchy, although gross margin stays robust for this sector. If Siemens can leverage its far bigger operational and gross sales community and apply it to Varian’s product segments, none of Varian’s present fundamental opponents may have the assets to compete, until acquired by one other main healthcare expertise vendor.

The Digital Gem 

Whereas the Radiation Remedy {hardware} enterprise has gained essentially the most consideration for its potential influence on Siemens Healthineers’ enterprise, Varian’s software program enterprise is arguably its most dear jewel, hitting virtually $600m and 18% YoY development in FY19.

Many healthcare suppliers have turn into more and more beleaguered by the challenges of digitalization as we speak, particularly in phrases of complicated integration of diagnostic and medical functions throughout the healthcare system. This frustration is particularly widespread in Oncology, which sits on the convergence of main departmental and enterprise IT programs, together with the EMR, laboratory, radiology, and surgical segments.

Altering fashions of care provision in the direction of multidisciplinary collaboration for analysis and care have solely intensified concentrate on fixing this difficulty, with some preferring single-vendor choices for main medical or diagnostic departments. The Varian software program suite is one of the few premium full-featured oncology IT portfolios obtainable as we speak, competing principally towards fundamental rival Elekta, generalist oncology info system modules from EMR distributors (few of which have the identical functionality) and a number of smaller standalone specialist IT distributors.

For Siemens Healthineers, the Varian software program asset is a superb match. Siemens has for a while been step by step altering course in its digital technique, away from massive enterprise knowledge administration segments in the direction of extra focused diagnostic and operational merchandise. This course of started with the sale of its EMR enterprise to Cerner for $1.3B again in 2015, with notably diminished advertising focus and bidding or deal exercise on massive imaging administration offers (PACS, VNA and many others.) in North America in recent times.

As a substitute, Siemens Healthineers has channeled its digital efforts on three fundamental areas the place it has specialist capabilities: superior visualization and entry to synthetic intelligence for picture evaluation; digitalization of superior imaging {hardware} modalities, together with driving effectivity for fleet administration and radiology operations; and lab diagnostics automation. Whereas nonetheless early on this transformation, this method is tapping into the principle challenges going through most healthcare suppliers as we speak; enhancing medical outcomes at a web impartial or diminished value, higher managing and decreasing Whole Price of Possession (TCO), and implementing autonomous expertise to reinforce medical and diagnostic apply.

Assuming integration with Siemens’ broader portfolio is just not too bumpy, it’s already clear how the totally different software program belongings of the Varian enterprise sit properly with Siemens’ digital technique. The Aria Oncology Data System platform will present an entry level for Siemens to construct on medical consequence enchancment in Oncology (together with Noona/360 Oncology) whereas additionally integrating diagnostic content material from the Siemens syngo imaging and AI-radiology functions. Additional, with rising consideration on operational software program to help modality fleet companies and radiology operations, Siemens might translate this enterprise into RT linac fleet administration, an space at the moment underserved.

With no competing vendor as we speak in a position to match this functionality in Oncology IT, the potential long-term advantages for Siemens’ digital technique with Varian far outweigh the dangers of integration.

From Morph Fits to Moon-shots

As alluded to in our introduction, maybe most intriguing is the bullish sign Siemens Healthineers has made to its clients and the broader market about its future.

The Healthineers 2025 technique recognized three clear levels of transformation, with “reinforcing the core portfolio” the important thing side of the 2017-2019 submit IPO. Within the second part “upgrading” the enterprise centered on pushing up development targets and earnings per share throughout all segments whereas including capabilities in allied markets.

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Judged towards the factors for the “upgrading” part, the Varian deal has ticked all of the packing containers, maybe clarifying why Siemens was keen to pay a premium:

The size of the deal has additionally strengthened that the gradual untethering of Siemens Healthineers from its company mum or dad Siemens AG is bearing fruit, each in phrases of flexibility to deal-make and the power to make use of the monetary firepower of its majority shareholder for aggressive achieve.

The deal, as soon as accomplished in 1H 2021, additionally now places Siemens Healthineers in an unique membership of medical expertise corporations with annual revenues above $20B, with a possible place because the third-largest public agency globally (primarily based on 2019 revenues, behind Medtronic and Johnson and Johnson).

It’s due to this fact exhausting to argue that the Varian acquisition may be considered as something however optimistic for Siemens Healthineers. Given the present influence of the COVID-19 pandemic and anticipated difficult financial legacy, the expansion potential of Varian will assist to easy the anticipated mid-term dip in some core enterprise over the following few years.

But it’s the intention and message that Siemens Healthineers is sending with the Varian acquisition that has is probably most spectacular; regardless of the turmoil and challenges going through markets as we speak, it essentially believes in its technique to reinvent its healthcare enterprise and goal precision medication long run.

Its main opponents ought to sit up and take be aware; Siemens Healthineers is quick re-establishing itself as a number one drive inside healthcare expertise. The morph fits of the “Healthineers” model launch was only one small step on this journey; the Varian acquisition goes to be one nice leap.


About Steve Holloway 

Signify Research_Steve Holloway

Steve Holloway is the Director at Signify Research, an unbiased provider of market intelligence and consultancy to the worldwide healthcare expertise trade. Steve has 9 years of expertise in healthcare expertise market intelligence, having served as Senior Analyst at InMedica (half of IMS Analysis) and Affiliate Director for IHS Inc.’s Healthcare Expertise apply. Steve’s areas of experience embody healthcare IT and medical Imaging.

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