Olympus Diagnostics Unit Sold to Beckman Coulter

More consolidation among IVD companies as Beckman boosts its presence in chemistry

CEO SUMMARY: For Beckman Coulter, the opportunity to acquire the diagnostics business of Olympus Corporation was compelling for at least two reasons. One, the chemistry and automation products of both companies are quite complementary. Two, in a steadily-consolidating in vitro diagnostics (IVD) industry, Beckman’s acquisition of the Olympus diagnostics unit was an important strategic response. It signals to financial analysts and laboratory customers that Beckman Coulter intends to continue as an aggressive competitor.

COMPELLING MARKET FORCES were in play when Beckman Coulter Inc. announced on February 27 that it would acquire the diagnostics business of Olympus Corporation.

Beckman Coulter, based in Yorba Linda, will pay about $800 million (or 77.45 billion yen) for the diagnostics systems portion of Olympus Corporation of Tokyo. The transaction is expected to close in the third quarter of 2009.

Beckman Coulter believes that, for its next full fiscal year, the addition of the Olympus Diagnostics business will generate an additional $500 million in revenue. It also expects that operating income will increase by $40 million to $50 million.

The Consolidation Factor

This acquisition is another major event in the ongoing consolidation that has reshaped the in vitro diagnostics (IVD) industry over the past 15 years. Once Beckman Coulter finalizes its purchase of Olympus, it will mean one less vendor for chemistry systems in the clinical laboratory marketplace.

It is Olympus’ strengths in clinical chemistry systems that appealed to Beckman Coulter. “We think this is a terrific combination,” said Mike Renard, Beckman Coulter’s Vice President of Business Development. “The way our chemistry businesses complement each other on a customer level and on a product level is significant.”

Olympus has been successful at placing its chemistry products in laboratories that handle high volumes of testing. Thus, once the purchase is completed, Beckman Coulter gains access to these highly-desired laboratory customers. It sees an opportunity to sell these Olympus chemistry customers other products from the Beckman Coulter portfolio. “This acquisition broadens our chemistry offering, particularly to the largest hospital laboratories,” noted Renard. “Further, these Olympus customers represent a valuable new customer set for Beckman Coulter’s entire range of immunoassay products.”

Beckman Coulter further believes there is additional synergy between the product lines of the two companies. “Our automation product lines are complementary,” he continued. “We’re particularly strong in total laboratory automation (TLA) and Olympus is recognized for its pre-analytical automation. This will enable us to offer customers more automation choices and different combinations to fit the unique needs of their clinical laboratories.”

Ongoing consolidation and the changing landscape of the IVD marketplace seemed to be a factor in Olympus’ decision to divest its diagnostics business.

“For example, Olympus has a product called OLA,” Renard added. “This is a front end handler and tube sorter for processing. That business is based in Germany, and we think it is very complementary to the full track systems that we have used, principally in the United States.”

The Olympus acquisition is important to Beckman Coulter for another reason: it further expands Beckman’s presence in Asia, where several countries have an accelerating demand for laboratory testing systems as their healthcare systems develop. In the next decade, countries such as China and India—with their huge populations—are predicted to be lucrative markets for the IVD industry. “We like the fact that this acquisition gives us access to a strong and loyal customer base,” Renard commented. “Plus Olympus has a significant presence in laboratories in Europe, in Japan, and several other markets in the Far East.”

IVD Industry Consolidation

Ongoing consolidation within the IVD industry was another factor in Beckman Coulter’s decision to acquire Olympus. The company recognized that size, scale, and a broad, integrated product offering are keys to success in the global IVD market. From that perspective, acquiring Olympus helps Beckman Coulter on each of those points.

“In recent years, consolidation in our business has been significant,” stated Renard. “Seimens and Roche are good examples. Both companies have used acquisitions to expand product offerings and scale.”

Ongoing consolidation and the changing landscape of the IVD marketplace seemed to be a factor in Olympus’ decision to divest its diagnostics business. As reported by Kyodo News International of Tokyo, Japan, although Olympus recognized that its diagnostics business operated in the black, intensifying competition among IVD manufacturers meant the company would be better off divesting its IVD business. Olympus says it will concentrate its business resources on what it perceives to be its core competencies, such as business lines in digital imaging and endoscopy.

Integrating Sales, Marketing

Lab administrators and pathologists know that consolidation and acquisitions involving their IVD suppliers often trigger changes. That will be true of the deal between Beckman Coulter and Olympus. Post-acquisition, Beckman Coulter will want to eliminate redundant costs and begin melding the two organizations into one. “We are looking at synergies and have established a team that is working on integration plans,” stated Renard. “But at this point, it is premature to speculate on any outcomes from that planning process.”

By its acquisition of the diagnostics business of Olympus Corporation, Beckman Coulter has made a strategic move long anticipated by Wall Street analysts. It has also signaled its intent to do what is necessary to continue as one of the world’s top-tier manufacturers of in vitro diagnostics products.

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