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Medtronic’s Heartware Acquisition: Portfolio Impact

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Acquisition overview

On June 28, Medtronic (MDT) announced its acquisition of Heartware International (HTWR) for $1.1 billion. The deal is expected to go through in 2Q17, which ends October 2016. The acquisition should strengthen Medtronic’s heart failure diagnostic devices and services business. Medtronic will offer $58 per share in cash for all the outstanding shares of Heartware International. Heartware shares jumped ~93% on the announcement of the acquisition, whereas Medtronic’s shares witnessed a slight decline.

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Acquisition-driven growth opportunities for Medtronic

The acquisition is likely to accelerate Medtronic’s growth potential in the global VAD (ventricular assist device) market, which is valued at approximately $800 million and expected to grow in the mid to high single digits. Through the acquisition of Heartware, Medtronic gets access to the company’s flagship product HVAD system, which is the world’s smallest VAD device with full support. It offers minimally invasive devices to support end-stage heart failure patients. The Heartware portfolio helps expand Medtronic’s Cardiac and Vascular Group (or CVG) product offerings. The Heartware business will be reported under the CVG group’s Cardiac Rhythm & Heart Failure division.

The acquisition is expected to be accretive in the third year of the deal, and it’s expected to register minimal or nil earnings per share dilution for the first two years after the deal.

Some other companies that manufacture heart failure devices include St. Jude Medical (STJ) and Boston Scientific (BSX). Investors who want to invest in Medtronic can consider the Health Care Select Sector SPDR Fund (XLV). XLV invests approximately 4.5% of its total holdings in Medtronic.

In the next part of this series, we’ll look at Medtronic’s recent initiative to further strengthen the company’s heart failure device business.

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