Recently, Hologic (HOLX) acquired privately-held TCT International, which is a distributor of medical products in China for $135 million in cash. Of this, $35 million is deferred for one year in addition to a two-year contingent earn out depending on TCT’s revenue growth.
The transaction is expected to generate additional revenue of $10 million during fiscal 2011 and be accretive to earnings, on an adjusted basis.
Products distributed by TCT, which has wide sales network and customer support infrastructure, include Hologic’s ThinPrep Pap Test, related instruments and other diagnostic and surgical products. This business will be integrated within Hologic’s international operations.
Hologic has carried out several tuck-in acquisitions in the past, which should boost its top line going ahead. In this respect, the January 2011 acquisition of Interlace Medical is worth mentioning, which manufactures MyoSure hysteroscopic tissue removal system. The inorganic route, along with expansion into international markets should enable the company to achieve its targeted double-digit revenues and earnings growth over the next five years.
Hologic recorded 24% of its revenues during the second quarter of fiscal 2011 from international operations. With the company’s focus on the international market, revenues from this region recorded a 10% growth during the reported quarter.
Clinical trials for Tomosynthesis is being carried out in various parts of Europe including Norway, Italy, France and the UK to gain public sector support and encourage market adoption on a worldwide basis. However, results from these trials are not expected in next 12-24 months.
Hologic has been building its international infrastructure and management resources, particularly in emerging markets like China, Latin America, Middle East and Eastern Europe. The company is also looking at global acquisitions to expand its distribution and manufacturing capabilities. It is encouraging to note that Hologic has experienced a rebound in volume in Europe, especially after a tough situation in 2009.
Based on an improving scenario and strength of the Dimensions product, the company recorded a 169% year-over-year growth in its mammography systems in the international market. Additionally, Hologic expects its GYN Surgical business to be an important growth driver for fiscal 2011 and onwards in both the US and international markets.
However, the company faces stiff competition from players such as Conceptus (CPTS), Qiagen (QGEN), among others. Moreover, the economic uncertainty is taking a toll on Hologic. High unemployment is forcing many people to defer their physician visits, thereby impacting volumes for ThinPrep, which in turn negatively impacted diagnostics revenues.
We are currently Neutral on Hologic.
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