The private equity group Carlyle has sourced an opportunity in the kidney disease and organ therapy space, which should transform the efficiency of Baxter’s healthcare delivery service. Carlyle were advised by Barclays, Goldman Sachs & Co, Kirkland & Ellis, whilst Baxter was being advised by Perella Weinberg Partners, JP Morgan Securities, Sullivan & Cromwell and Baker McKenzie. Atmas is led by industry executives that specialise in acquiring and building healthcare businesses, which should lead to increased returns for investors.
Baxter is a medtech company based in the US, focused on producing intravenous products and those used in the delivery for various fluids and drugs. Primarily, the company is involved in treating kidney disease, such as irreversible kidney failure and other chronic conditions. The kidney care segment of Baxter will be renamed as a new standalone business called Vantive, which currently offers products for peritoneal dialysis, hemodialysis and renal replacement therapy. Subsequently, the deal follows as Baxter announced its intention to create the standalone kidney care company for a potential sale, in an attempt to shift the company towards a strategic realignment. The deal should allow them to provide more innovative treatment that helps patients and provide value back to the shareholders of the company. Additionally, this innovation is realized through stronger digital solutions that can improve dialysis treatment and boosted through investment into other organ therapy treatments.
Baxter should receive approximately $3.5bn in cash, with after tax cash proceeds amounting to $3bn and they are forecasted to improve sales growth by 4-5% from the previous outlook for 3%. This cash should mostly go towards reducing Baxter’s debt, including repayment of its new bridge facility. Also, this will be especially important in reducing Baxter’s debt to equity ratio, which has increased from 65.6% to 167.4% in the past five years and they want to move towards an investment-grade target of below 3.0x by 2026. In terms of debt coverage, their debt is not covered well by operating cash flow, which calls at a low of 9.1%. Following on from this deal, Baxter's stock is expected to outperform expectations, calling for a heightened operating margin through cost containment initiatives. Currently, the operating margin has been adjusted to 16.5% reflecting remaining stranded costs and the loss of TSA income.
In the past year, the kidney care business generated $4.45 bn in sales, which derived 30% of Baxter’s total revenue. The company has 23,000 employees, displaying there is already a strong company culture and mission-driven care teams with a long-term strategic vision. The new capital should allow the company to push past current restraints and Carlyle is uniquely positioned in different regions (such as America, EMEA, ASIA), in providing this innovative value.
Overall, the deal should accelerate growth for both Baxter and Vantive business units and should help respective companies achieve their growth objectives. The transaction is expected to close by late 2024 or possibly early 2025.
Written by: Jansher Verscht
Sources: Mergerlinks, PE Insights, Sullivan & Cromwell, Forbes, Yahoo Finance, Investor's Business Daily
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