Chinese medical devices major Mindray Medical International Limited (MR) recently reported a definitive agreement to takeover ZONARE Medical Systems, Inc. (ZONARE), for $105 million. ZONARE is a leader with ultrasound expertise.
Mindray forecasts the acquisition to be mildly dilutive to earnings in 2013 and 2014. ZONARE generated sales of about $64 million in 2012.
ZONARE was established in 1999 in Mountain View, California. It operates at the high end of the market worldwide. Mindray stands to gain from its U.S. based sales setup and R&D abilities. Synergies are expected from Mindray’s streamlined manufacturing process and ZONARE’S marketing capability.
Mindray plans to keep ZONARE’s current operational setup as well as its existing management structure. The deal is anticipated to close in the third quarter of 2013 and is subject to standard regulatory and other clauses.
Mindray is a bellwether in the Chinese MedTech industry with a solid international presence. A key distinction with domestic competitors is that the majority of Mindray’s products have CE Mark and/or Food and Drug Administration (FDA) clearance.
Mindray maintains a decent product pipeline and brings out several new products each year. New products contribute in a major way to Mindray’s revenues. In 2012, the company launched 10 new products and acquired four companies.
The company has entered the premium segment globally, where its competitive advantage is still unclear. Also, on the negative side, health care reforms in China and the U.S. may reduce demand for Mindray’s products. Competition is fierce and leads to price erosion over time.
The stock carrries a Zacks Rank #3 (Hold). Becton, Dickinson and Company (BDX), Heartware International Inc. (HTWR) and Intuitive Surgical, Inc. (ISRG) each carry a Zacks Rank #2 (Buy) and are expected to do well.
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