Medical Device Daily Executive Editor
SAN FRANCISCO – Driving shareholder value for those who hold stock in large public companies takes many forms, with strategic investments, partnerships and mergers/acquisitions looming large among them.
Different companies take different approaches, said members of a panel during last week's Frost & Sullivan Medical Devices Executive Summit at the Hyatt at Fisherman's Wharf.
For instance, Paul Smit, senior vice president, strategy and business development for Philips Medical Systems (Best, the Netherlands/Andover, Massachusetts), said, "Our culture is to go with an alliance first, or a joint venture." He said Philips looks at mergers and acquisitions as "the last and most difficult path to building value."
Brad Harlow, senior consulting advisor for Guidant CRM (Santa Clara, California), took a different tack, saying that, for Guidant, an alliance usually is "an interim play." Acquisition, he declared, offers "the greatest value for shareholders."
While characterizing M&A as "very risky," Joseph DeVivo, president and CEO of RITA Medical Systems (Mountain View, California), said such activity is "the essence of our business."
Calling M&A opportunities "the lifeblood of the medical device industry," he said that "people want to build a technology and get out or build an organization and get out."
Panel moderator Kevin Wasserstein, a principal with Versant Ventures (Menlo Park, California), one of the leading med-tech investment firms, asked the panel members to "talk about the baby steps of getting to M&A."
Harlow said one major need for large companies is to have a "wallpaper strategy" in terms of intellectual property (IP). "They have to have enough IP to have 'weapons of mass destruction' against competitors" in the spaces where they operate. He said a company needs to answer whether its technology is good enough to compete or whether a technology it might license from a smaller company is better.
"If their technology is better," he said, "we can give them the clinical support they need. They usually will gain speed to market."
From Philips' perspective, Smit said, "we use minority investments to get into a business we feel we need to be in, but want to be in" on an all-out basis.
Harlow said that he represents the perspective of "a lot of small firms" with which Guidant does "a lot of distribution deals." In such instances, he said, "being able to work together is paramount."
He said that in such cases, "you want to make sure the respective CEOs have regular contact," because, he noted, "at some point, you'll have a contract problem, and if the CEOs have a relationship, you can get past that" more easily.
Another suggestion: "Have a clear vision and make sure everyone is aware of it. Stay clear on your vision all the way through."
Noting that it's important for a company's top execs to know what its core competencies are, Harlow said, "You need a very clear vision on your own market sector."
Smit said that when Philips does look at a company as a possible acquisition target, "we like it to be complementary to what we do. We look at companies that serve the same customers as we do, but with a different technology."
He added: "We also look to get management [of the company to be acquired] on board; we try to get them to sign contracts" to stay on after the acquisition is completed.
"We'd like you to be part of our future, so if your goal is to get out, then we're not interested" in making a deal, he said.
For DeVivo, one key to making acquisitions work is, "make sure you know what you're acquiring." If, for instance, "you're buying a large, established business, then culture is very important."
Harlow interjected: "style matching is particularly important if you're buying distribution," but said it has "zero value if you're buying technology." However, he said, "the more unique your product or process, the higher the value of the company."
As for timing, DeVivo said, "don't tie yourself to a specific timeline," while Wasserstein added: "One factor is how close you are to accretion."