The Wider View: More devices, more informatics in Philips’ M&A plans, as value-based healthcare takes centre stage

It’s been a while since Philips pulled an acquisition in the billion-dollar range. As it looks to offload its domestic appliances unit, might a big-buck deal be on the horizon? 

What's happened

In conjunction with the release of its Q4 2019 results, Philips also announced on Tuesday that it was looking to split its Domestic Appliances (DA) unit from the group. CEO Frans van Houten said during a media roundtable that the company has always been cognisant that the strategic synergies between DA and Philips’ health technology businesses have been "minimal" and the decision to carve out this unit reflects the company’s desire to sharpen its focus on healthtech even more, as the healthcare market continues to grow. 

The DA unit sells kitchen, garment care and home care appliances and generated revenue of €2.3 billion ($2.5 billion) for 2019.

The wider view

While Philips’ announcement stated that it was reviewing all options for its DA unit, it was almost a given that the most attractive route for the group would be to divest it to an interested buyer. van Houten said as much when he commented during a media roundtable: "By externalising Domestic Appliances, in other words selling it, it would free up the capital for potential reinvestment in the portfolio and thereby accelerate our progress in the health tech space."

This naturally leads to the question about what parts of the portfolio Philips might be looking to invest in and what the company’s M&A strategy is moving forward.

Looking at Philips’ 5-year M&A track record (see below), the company has not made a big billion-dollar deal after Spectranetics in 2017 - and Volcano in 2015 - and the volume of acquisitions have also gone down since then, with small bolt-ons being the standard for the last two years.

Philips' M&A activity 2015-2019

Year

Target

Type of business

Purchase consideration

2019

CareStream Health's  health IT platform

IT - cloud-based enterprise imaging platform

Undisclosed

 

Medumo (US)

Digital health - diagnostic and patient management platform

Undisclosed

2018

EPD Solutions (Israel)

Cardiology

Up to €460m ($506m)

 

Remote Diagnostics (UK)

Emergency care

Undisclosed

 

Xhale Assurance (US)

Respiratory - pulse oximetry technology

Undisclosed

 

NightBalance (The Netherlands)

Respiratory - device to treat positional obstructive sleep apnea and positional snoring

Undisclosed

2017

Australia Pharmacy Sleep Services (Australia)

Patient monitoring - pharmacy sleep testing services

Undisclosed

 

RespirTech (US)

Respiratory - airway clearance therapy vests

Undisclosed

 

Electrical Geodesics, Inc (US)

Neurodiagnostics - noninvasive brain monitoring

$36.7m

 

CardioProlific (US)

Peripheral vascular -  thrombectomy devices

Undisclosed

 

Spectranetics (US)

Cardiovascular/Peripheral vascular- laser atherectomy catheters 

$2bn

 

Health & Parenting Ltd (UK)

Digital health - mobile apps for expectant and new parents

Undisclosed

 

TomTec Imaging Systems (Germany)

Diagnostic imaging - image analysis software

Undisclosed

 

Analytical Informatics (US)

Informatics/Data analytics

Undisclosed

 

Forcare (Netherlands)

IT - interoperability platform

Undisclosed

 

Vital Health Management (Netherlands)

Cloud0based health population management

Undisclosed

 

Digirad medical device sales and service business (US)

Diagnostic imaging - services

$8M

2016

PathXL (Northern Ireland)

Diagnostic imaging - image analysis, work flow software

Undisclosed

 

Wellcentive (US)

Informatics - population health management

Undisclosed

2015

Volcano (US)

Cardiovascular – image-guided therapy

€800m ($1bn)

 

When asked by FirstWord MedTech whether Philips has seen any opportunities for a big billion-dollar deal soon, van Houten said "sometimes it's easier to find bolt-ons rather than the bigger transformatory acquisitions."

He added that he has "absolutely an open mind" to doing bigger deals, but the price and the risk reward ratio needs to be good. The CEO pointed out that the Spectranetics and Volcano deals helped the firm move beyond capital equipment, be more solutions-oriented and focus on "innovating the procedure". The acquisitions of those device-based businesses have enabled Philips to grow around 10%, more than twice the average capex market growth rate, according to van Houten. "This is a consequence of the strategic integration of [our] devices in the operating environment and allowing for procedure innovation."

In parallel with this device M&A strategy, Philips is also "embracing informatics and data science" that can help integrate care processes and optimise work flows. "We’d be looking to use predictive analytics to support medical staff in caring for patients and enabling patients to move faster outside of the hospital to lower-cost care settings." 

The CEO conceded that the market for informatics solutions is slower in taking off than initially expected, but it doesn’t change Philips’ strategic view and the company will continue to look at acquisitions - like last year’s deal for Carestream Health’s cloud-based enterprise imaging platform, among several others before that - to "beef up" its informatics portfolio.

Philips’ strategy to home in on informatics and data science is aligned with the transformation of healthcare to a value-based model, and this phenomenon will take centre stage over the next ten years, van Houten believes. 

As a member of the World Economic Forum’s Value in Healthcare coalition, he said that several years of discussions on this subject have led to "a good orientation, but it has not yet been operationalised."

"The 2020s will be the decade where the business model in healthcare is going to tilt towards a much better measurement of value in healthcare. In other words, real-world evidence on healthcare impacts on populations, individual patients and a much better transparency on cost." While the speed of this transformation might differ from country to country, van Houten said the feedback he got from different ministers indicates that "everybody is going in that direction."

"Of course, it will have two consequences," he added. "First of all, we need to measure. And secondly, it will put the pressure on the healthcare providers to start improving further productivity and reduce variance, because the variance is quite significant between different providers."

The use of enabling technologies, informatics and data analytics can help providers reach their end-goal of operating a value-based healthcare system by optimising their processes, taking waste out, getting a better return on capital equipment and on staff utilisation, as well as measuring patient-reported outcomes, according to van Houten. "The idea is we start correlating all that to create an integrated picture...Philips' investments in health technology and informatics over the last few years is already setting us apart, versus some more traditional competitors that are still more device companies or capital equipment companies. I have every intention to continue shifting Philips towards a leader in enabling this more integrated care model, and to be a shaper of it.

Did you like this article?