Lab Market Trends Drive Beckman-Coulter Deal

Merger of two high-quality diagnostic firms predicted to create a tough new competitor

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CEO SUMMARY: Laboratory executives should pay attention to Beckman’s acquisition of Coulter. Together, both companies service a sizeable base of laboratory customers. Any changes to products and services resulting from this merger will affect a large number of clinical laboratories. Observers believe the merger is a strategic plus for both companies.

FEW WERE SURPRISED when it was announced on September 2 that Beckman Instruments, Inc. would acquire Coulter Corporation. The combined company represents worldwide sales of $1.7 billion.

Beckman is paying $875 million in cash to Coulter’s shareholders. Beckman will also assume $175 million of Coulter’s debt. It is expected that the merger will occur before year end.

Trigger Shock Waves

Although it may not seem like major news, THE DARK REPORT predicts that the Beckman-Coulter merger will trigger a series of shock waves in the diagnostics industry. Laboratory users of Beckman and Coulter products will see many changes as the two companies combine product lines, consolidate operations and merge the sales and technical services departments.

The biggest shock waves, however, will come from how competitors respond to the Beckman-Coulter merger. The diagnostics marketplace is about to be altered beyond recognition as competing diagnostic firms reshape themselves to counter the threat of the Beckman-Coulter combination.

To be called Beckman Coulter, Inc., the combined company will represent a blockbuster competitor in the diagnostics marketplace. “This is the same as assembling two extremely powerful baseball hitters in the same line-up,” stated Andrew Schmidt, Principal of Kellan Corporation, a consulting company in Alpharetta, Georgia. “Both companies have unequalled reputations for quality throughout the world. Neither company has ever let quality take a back seat to price. Their technology and products have consistently performed to the equal of any competing system.”

Merger Impetus

Impetus to this merger may have come from the sale of Boehringer Mannheim GmBh to Roche Holdings, Ltd. in May. Roche paid $11 billion to acquire Corange Ltd., parent company of Boehringer Mannheim. With this acquisition, Roche eclipsed Abbott Laboratories Inc. as the world’s largest diagnostics company.

Even before the Roche-Boehringer deal occurred, both Beckman and Coulter were considered likely takeover candidates. That changes with this merger. “Beckman is taking on a lot of debt to do this acquisition,” said Schmidt. “Besides helping Beckman acquire a critical mass of sales and revenue, the addition of the debt makes them a more expensive acquisition target. From this perspective, it was a good strategic move for Beckman to structure the deal in this manner.

“What should not be overlooked in this merger is how the two product lines complement each other,” he noted. “Beckman already has a complete offering of instruments for special chemistry, general chemistry and electrophoresis. Coulter has a world-class line of hematology instruments. As a combined company, Beckman Coulter can bundle these products together. They become a sole-source solution.”

Offer Better Pricing

“This also permits Beckman Coulter to offer better pricing,” Schmidt continued. “A laboratory can buy both chemistry and hematology from a single vendor. What is interesting is that Beckman not only purchased a quality line of hematology instruments, but they also bought the largest share of the hematology marketplace. That strengthens the overall financial position of the combined diagnostics company.”

Laboratory clients of Beckman and Coulter should expect obvious changes to occur. “One of the first things which will happen is that the sales force and field service team from each company will undergo restructuring. No longer will a sales rep from each company call on every laboratory. You will see one sales rep, with appropriate technical support in each region.”

“What will be most interesting to observe is how Beckman Coulter, Inc. integrates its two sales teams,” explained Schmidt. “Because Coulter owns 70%-80% of the hematology market, they do not have much growth potential. Its strategy has been to retain the hematology base business. Expect Beckman Coulter to make retention of this core hematology business a major priority.

“The chemistry instrument marketplace is different. Because no single vendor has more than 30% of the market, Beckman Coulter will want to aggressively pursue new sales. How it revamps its sales force to accomplish both goals will be interesting to watch.”

Continuing Consolidation

The Beckman acquisition of Coulter is another reminder to laboratory executives that consolidation continues to be a dominant trend reshaping healthcare. Beckman Chairman and CEO Louis Rosso said as much. “We are certainly in a consolidating part of the market,” he said when asked how hospital and laboratory consolidation was impacting both companies.

Rosso’s comment acknowledges the shrinking number of laboratory customers due to consolidation. There is less business volume to support the diagnostics industry. That constrains the growth rate and forces diagnostics companies to look at other ways to expand revenues and operating profits.

Bewildering Changes

“I believe that laboratory administrators who purchase instruments are going to face a bewildering array of changes in coming years,” predicted Schmidt. “Look at the various instruments which Beckman Coulter can now bundle under one contract. It makes them a better ‘sole-source solution’ than before the merger. As competing diagnostics companies respond, lab administrators will find themselves facing totally new options for acquiring equipment and testing technology.”

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