By Quentin Webb
LONDON, March 16 (Reuters) - Devices for the hard of hearing shouldn't be a hard sell for investors: greying populations, cacophonous modern life, and the advent of sleeker machines to win image-conscious converts should all make for big profits.
But private equity firms have balked at the hearing-aid business Siemens AG has just tried to offload -- even though a disposal made plenty of sense for the German industrial giant.
The recent acquisitions of Ambea, Marken and Sebia show buyout houses will still jump at a good growth story in healthcare.
In some cases buyers have been willing to risk committing to pay the full price in equity if necessary, figuring they can arrange debt between signing and closing the deal.
Sonova Holding AG, a market leader in hearing products, has also grown revenues by 14.4 percent and earnings per share by 32.9 percent a year over its last five full years of results, according to Reuters data.
But both sales and margins have waned at the Siemens unit -- undermining its appeal to private buyers and making an alternative public listing a much tougher sell.
Its operating margins fell to 26 percent last year, from 30 percent, according to a source familiar with the matter.
'Compared to its rivals, the business has underperformed for years, it's more exposed to a few big customers, and it's the only major supplier that doesn't have its own retail outlets,' said Michael Jungling, head of medical technology and healthcare services research at Morgan Stanley.
The German engineer could have used the chance to ditch one of its last consumer-facing operations, following earlier retreats from making personal computers (PCs) and telephones to concentrate on heavy-duty kit sold to pros, such as medical scanners and turbines.
However, Siemens insisted to KKR, Cinven, and a clutch of other leveraged buyout firms that it would not take less than 2 billion euros ($2.7 billion) for the unit, according to people familiar with the matter. The suitors were unwilling to pay more than about 1.6 billion.
The asking price is about 11.75 times the audiology unit's forecast earnings before interest, tax, depreciation and amortisation (EBITDA) of some 170 million euros.
That represents a 20-25 percent discount to where listed peers William Demant Holding A/S and Sonova trade, but a handsome premium to Siemens's own trading multiple, of about 7.9 times forecast EBITDA for the year to September.
The business may have suffered as an outpost of a much bigger conglomerate, while its focused rivals have benefited from longer-serving management and zippier products -- Siemens devices lag rivals' by up to 5 years, analysts estimate.
A buyer would have had to stump up hundreds of millions of euros to turn things round, while simultaneously dropping the emblematic Siemens marque and keeping restive unions happy.
'You need to invest to reinvigorate the topline, to catch up in terms of product launches and innovation. If you can surprise retailers with exciting new gadgets, your salesman will have an open door to talk to them,' said Jungling at Morgan Stanley.
With the deal off the table, Siemens is bracing to commit 600 million euros or so to grow its own dealership network. On Tuesday it named Roger Radke as the unit's new chief executive.
($1=.7318 Euro)
(Visit Reuters DealZone: http://blogs.reuters.com/reuters-dealzone/)
(Editing by Sitaraman Shankar) Keywords: SIEMENS HEARINGAIDS/ (quentin.webb.reuters.com@reuters.net; +44 207 542 9405) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
LONDON, March 16 (Reuters) - Devices for the hard of hearing shouldn't be a hard sell for investors: greying populations, cacophonous modern life, and the advent of sleeker machines to win image-conscious converts should all make for big profits.
But private equity firms have balked at the hearing-aid business Siemens AG has just tried to offload -- even though a disposal made plenty of sense for the German industrial giant.
The recent acquisitions of Ambea, Marken and Sebia show buyout houses will still jump at a good growth story in healthcare.
In some cases buyers have been willing to risk committing to pay the full price in equity if necessary, figuring they can arrange debt between signing and closing the deal.
Sonova Holding AG, a market leader in hearing products, has also grown revenues by 14.4 percent and earnings per share by 32.9 percent a year over its last five full years of results, according to Reuters data.
But both sales and margins have waned at the Siemens unit -- undermining its appeal to private buyers and making an alternative public listing a much tougher sell.
Its operating margins fell to 26 percent last year, from 30 percent, according to a source familiar with the matter.
'Compared to its rivals, the business has underperformed for years, it's more exposed to a few big customers, and it's the only major supplier that doesn't have its own retail outlets,' said Michael Jungling, head of medical technology and healthcare services research at Morgan Stanley.
The German engineer could have used the chance to ditch one of its last consumer-facing operations, following earlier retreats from making personal computers (PCs) and telephones to concentrate on heavy-duty kit sold to pros, such as medical scanners and turbines.
However, Siemens insisted to KKR, Cinven, and a clutch of other leveraged buyout firms that it would not take less than 2 billion euros ($2.7 billion) for the unit, according to people familiar with the matter. The suitors were unwilling to pay more than about 1.6 billion.
The asking price is about 11.75 times the audiology unit's forecast earnings before interest, tax, depreciation and amortisation (EBITDA) of some 170 million euros.
That represents a 20-25 percent discount to where listed peers William Demant Holding A/S and Sonova trade, but a handsome premium to Siemens's own trading multiple, of about 7.9 times forecast EBITDA for the year to September.
The business may have suffered as an outpost of a much bigger conglomerate, while its focused rivals have benefited from longer-serving management and zippier products -- Siemens devices lag rivals' by up to 5 years, analysts estimate.
A buyer would have had to stump up hundreds of millions of euros to turn things round, while simultaneously dropping the emblematic Siemens marque and keeping restive unions happy.
'You need to invest to reinvigorate the topline, to catch up in terms of product launches and innovation. If you can surprise retailers with exciting new gadgets, your salesman will have an open door to talk to them,' said Jungling at Morgan Stanley.
With the deal off the table, Siemens is bracing to commit 600 million euros or so to grow its own dealership network. On Tuesday it named Roger Radke as the unit's new chief executive.
($1=.7318 Euro)
(Visit Reuters DealZone: http://blogs.reuters.com/reuters-dealzone/)
(Editing by Sitaraman Shankar) Keywords: SIEMENS HEARINGAIDS/ (quentin.webb.reuters.com@reuters.net; +44 207 542 9405) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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