(Reuters) - Hill-Rom Holdings Inc (HRC.N), a maker of hospital beds and surgical products, said it would buy privately held Welch Allyn for about $2.05 billion to expand into the point-of-care diagnostics market.
Welch Allyn’s equipment allow physicians to carry out diagnostic tests in point-of-care settings such as hospital beds and emergency rooms without having to wheel patients around.
Hill-Rom’s shares jumped as much as 10.6 percent to a record high of $57.95 in early trading on the New York Stock Exchange.
The deal will also expand Hill-Rom’s reach into post-acute care settings such as home-health and long-term care centers, demand for which is growing as the U.S. population ages.
KeyBanc Capital analyst Matthew Mishan said he expects more deals among medical technology companies as they, like hospitals and healthcare service providers, look to add scale and be more relevant with customers in an integrated healthcare setting.
The broader healthcare sector has been gripped by M&A activity in recent months for reasons ranging from patent expirations, rising generic drug sales and healthcare reforms.
Medical device makers have been looking to expand their portfolio as device prices come under pressure amid shrinking government reimbursement for procedures.
Last year, Medtronic (MDT.N), the world’s largest stand-alone medical device maker, bought Covidien, a maker of devices used in a range of surgical procedures.
“Welch Allyn provides with Hill-Rom with large, more diverse platforms that will enable more M&A opportunities in the future,” Hill-Rom CEO John Greisch said.
The deal “is the next step in our transformational journey,” Greisch said in an interview. “It adds products and services to enable us to have scale, depth and breadth to bring more value to our customers.”
Welch Allyn shareholders will receive $1.625 billion in cash and about 8.1 million newly-issued shares of Hill-Rom common stock.
At the closing of the deal, expected in September, Welch Allyn’s 75 shareholders will own about 13 percent of the combined company.
Welch Allyn has annual revenue of about $700 million. The combined company is expected to generate revenue of $2.6 billion and over $500 million in Adjusted EBITDA, Hill-Rom said.
The acquisition is expected to add over 10 percent to Hill-Rom’s 2016 adjusted earnings.
Hill-Rom, which also reaffirmed its outlook for the third quarter, expects to finance the deal through a combination of equity and senior debt.
Goldman Sachs & Co was financial adviser to Hill-Rom, while Barclays advised Welch Allyn.
Additional reporting by Olivia Oran; Editing by Saumyadeb Chakrabarty