Kinetic Concepts gets Taken Over but Who is Next?

Kinetic Concepts $KCI announced today that they have agreed a $4.98bn takeover bid from London based Apax Partners. Naturally, investors will want to know what Apax see in this deal and which companies could be next?

Kinetic Concepts is the largest single wound care company in the world and despite flattish looking sales over the last few years, I think this is a very good deal for Apax. Not only is Kinetic Concepts highly cash generative but they have leadership in the negative-pressure therapy market. This is exciting because this type of vacuum treatment helps wounds heal quicker and reduces the amount of days that a patient spends in hospital. In turn this produces a huge saving. In addition, with the launch of a portable device it should be possible for patients to be treated at home and therefore generate more cost savings. With hospital budgets likely to be challenged over the next few years this represents a great opportunity for Kinetic Concepts.

 In addition, following channel checks, it has been revealed to me that Kinetic’s LifeCell division is generating strong demand for reconstructive tissue matrix product ‘Strattice’. So, in my view, Apax is picking up a company that is set for acceleration in its sales growth but which is already generating huge amounts of cash. It is a smart deal for them. So who is next?

Advanced Medical Solutions

I think a small UK company could be next in line. Advanced Medical Solutions is a wound care focused company that has an established wound care healing product called Activheal and a wound closure product that rivals Johnson and Johnson’s $JNJ Dermabond. I’ve spoken to a few surgeons and the general opinion is that Liquiband is pretty similar to Dermabond in efficacy. So, in reality, sales growth is likely to be generated via pricing and the strength of the distribution ability. In other words, it represents a perfect opportunity for a larger company to come in and accelerate sales growth.

Potential suitors not only include the likes of Apax (who could know merge AMS’ products with Kinetic Concepts sales force) but also someone like Kinetic Concepts UK rival Smith and Nephew. In addition, now that Kinetic Concepts has gone to private equity there could be more pressure on a private equity purchase. AMS’ main rival in the UK is Convatec which is a private company. AMS is cash generative, profitable and has good growth prospects as it tries to expand sales for Liquiband in the US. I believe, a company that could be bid for in future.

I sold my Kinetic Concepts position and hold Advanced Medical Solutions.