Recently, according to media reports, one of the world's largest suppliers of contact lenses, Bausch+Lomb, is considering a sale to end the chaotic situation of its debt ridden parent company, Doctoral.
According to informed sources, Bausch&Lomb is currently working with advisors from Goldman Sachs to test potential buyers' interests. And Bausch&Lomb may attract the interest of private equity investment groups.
According to industry media reports, analysts from Needham&Company believe that private capital is the most likely buyer. Because peers from the medical device industry such as Alcon and Johnson&Johnson will face antitrust issues, and in the pharmaceutical industry, AbbVie will also encounter antitrust issues.
An industry insider in the field of ophthalmology told 21st Century Business Herald reporters that news of the sale of Bausch&Lomb is not the first time it has appeared, and similar rumors continue to circulate in the market. This actually reflects that in the operation of the capital market, buying and selling transactions of enterprises are normalized, especially in attractive tracks.
Has been rumored for sale three times
Bausch Health, the parent company of Bausch&Lomb, formerly known as Valeant Pharmaceuticals, is a multinational professional pharmaceutical company headquartered in Canada, serving various therapeutic fields including dermatology, gastroenterology, neurology, and ophthalmology.
It is understood that the company operates through five main business units - Bausch&Lomb (ophthalmology related), Salix Pharmaceuticals (gastroenterology related), International Rx (responsible for pharmacy services), Solta Medical (beauty industry), and a department responsible for diversified products.
Bausch&Lomb is one of the international healthcare brands, offering a range of eye care products including contact lenses, lens care products, ophthalmic drugs, intraocular lenses, and other eye surgery products. It has a product line that includes transparent lenses, colored lenses, and care fluids.
In fact, this is not the first time that news of Bausch&Lomb being sold has been reported.
As early as 2016, the media quoted informed sources as saying that Valeant (predecessor of Doctoral Health) was seeking to sell its eye surgery business acquired by Bosch three years ago, with a valuation of $2.5 billion. But it is still in the early stages, so it is unclear which potential acquirers there are, and Valeant may also decide not to sell this business.
In August 2020, Dr. Kang stated that the Bausch&Lomb brand would operate as an independent company, and according to media reports, the company's valuation after independence was between $20 billion and $30 billion.
In May 2021, the media reported that Bosch's parent company, Dr. Kang, was considering selling its eye care business, which operates under the Bosch brand and includes eye care products such as contact lenses and surgical equipment.
In fact, not only Bosch, but also ophthalmic companies such as Alcon and AMO have been sold back and forth The industry insiders mentioned above pointed out.
According to research, in the field of ophthalmology, in May 2013, Canadian pharmaceutical company Valeant purchased Bausch&Lomb from the US investment group Warburg Pincus for $8.7 billion in cash. This transaction will allow Valeant to become one of the world's largest pharmaceutical companies, and there have been multiple reports of it seeking a sale.
From 2008 to 2011, Novartis spent $52 billion to acquire its ophthalmic product subsidiary, Alcon, from Nestle. However, in 2018, Novartis announced the divestment of Alcon's eye care equipment business and subsequently transferred some of its ophthalmic product commercialization rights to Bosch.
For AMO (Advanced Medical Optics), in September 2016, Abbott Laboratories agreed to sell its ophthalmic surgical equipment business, Abbott Medical Optics, to Johnson&Johnson for $4.325 billion. At the time, the two healthcare giants were reshaping their medical equipment portfolio, and the business was acquired by Abbott Laboratories in 2009 for $2.8 billion (including debt) under the name Advanced Medical Optics.
Regarding the phenomenon of continuous acquisition and sale in the ophthalmology field, the industry insiders mentioned above told 21st Century Business Herald reporters that the operation of the capital market is actually like this, constantly buying and selling transactions, which also indicates that the quality of this market is good. And the prices of these companies are not getting lower as they sell, they are all selling at higher prices, which to some extent proves that the management level of these foreign companies is very good, and no matter how they sell, it does not affect the operation and sales of the companies themselves
From the overall market situation, according to Frost&Sullivan data, the global ophthalmic medical device market size increased from 21.5 billion US dollars to 26.8 billion US dollars from 2017 to 2021, with a compound annual growth rate of 5.6%. By 2025, the global ophthalmic medical device market size is expected to be 40.7 billion US dollars, with a compound annual growth rate of 11.1% from 2021 to 2025. By 2030, the market size is expected to reach 56.4 billion US dollars.
The growth rate of the Chinese ophthalmic medical device market is higher than that of the global ophthalmic medical device market. From 2017 to 2021, the market size of Chinese ophthalmic medical devices increased from 9.2 billion yuan to 16.3 billion yuan, with a compound annual growth rate of 15.5%. It is expected to reach 30.4 billion yuan by 2025.
Although the market continues to grow, Bausch&Lomb's performance does not seem optimistic. According to the financial report released by Bausch&Lomb, the cumulative revenue for the first six months of fiscal year 2024 was $2.315 billion, compared to $1.966 billion in the same period last year, a year-on-year increase of 17.75%. However, the cumulative net loss during the period was $311 million, compared to $117 million in the same period last year, an increase of 165.81% year-on-year.
The parent company is trapped in huge debts
The news of the sale of Bausch&Lomb may be closely related to the current predicament of Dr. Kang. According to reports, Dr. Kang's current debt is $21 billion, of which $10 billion will mature by the end of 2027. However, as Bausch&Lomb is an important revenue generating subsidiary, the parent company must pass a solvency test before being approved for sale.
According to the analysis, in recent years, Doctoral Health has been involved in frequent mergers and acquisitions, which may have resulted in heavy debts.
Since its establishment, Doctoral Health has completed 24 acquisitions, including three large and well-known acquisitions: in September 2012, it acquired the skin disease treatment company Medicis Pharmaceutical for $2.6 billion; In August 2013, it acquired the ophthalmic healthcare company Bausch&Lomb for $8.7 billion, and in August 2015, it acquired Sprout Pharmaceuticals, a biotech company specializing in treating female sexual dysfunction, for $1 billion.
In addition, in 2019, Doctoral acquired certain assets of Synergy Pharmaceuticals, a US biopharmaceutical company, for a consideration of $195 million.
In the face of debt issues, in July 2024, a research company reported that Dr. Kang was considering bankruptcy options, and Dr. Kang responded by saying, "The report contains unconfirmed rumors, including that the company is considering any type of bankruptcy or insolvency proceedings - but that is not the case
Dr. Kang had previously spun off other businesses, perhaps also to help repay debts. According to the official website of Doctoral Health, on August 3, 2021, Doctoral Health announced plans to conduct an initial public offering (IPO) of its beauty business.
As a key core business of Doctoral Health, Bausch&Lomb has completed the separation of its business from its parent company. According to the official website of Bausch&Lomb, in May 2022, with the end of its initial public offering, Bausch&Lomb was spun off as an independent listed company. However, Doctoral remains a restricted subsidiary and a core part of Doctoral's business by retaining approximately 88% ownership.
According to industry media reports, Thomas Appio, Chairman of Doctoral Health, stated during the August 2024 earnings conference call that "the complete separation of Bausch&Lomb remains a strategic priority
According to media reports, Bausch&Lomb may hire Goldman Sachs to explore the sale of the company. However, the value of the enterprise may be suppressed by various factors, including its control held by Bosco and the large amount of debt on Bosco's consolidated balance sheet - $20.4 billion, of which $4.6 billion is Bosco's debt. Therefore, selling control to the new entity will address these two issues and may yield much higher value than the current transaction with Bausch&Lomb. This will greatly benefit the shareholders of Bausch&Lomb, with Dr. Kang being the largest shareholder.
The ophthalmology industry insiders mentioned above told 21st Century Business Herald reporters that companies are all profit oriented, and it is precisely because some people are optimistic about this market and the further development of the company that there is a demand for acquisitions. "For example, if a company manages and operates a certain business with a revenue of 100 million yuan per year, but sells it, it may generate a one-time income of billions of yuan, which is equivalent to obtaining future income in advance. From the perspective of the acquirer, they may think that under their own operation and management, this business can play a higher value and achieve more income, so they are willing to buy it
It is worth noting that, based on the closing price of $15.55 per share on September 13th, as an 88% owner of Bausch&Lomb, Doctoral will receive a value of $12.32 billion from such a sale.
Subsequently, the stock price of Bausch&Lomb continued to rise. As of noon on September 19th, Bausch&Lomb's stock price had risen to $20. Based on this stock price, the value obtained from the sale of Doctoral Health may exceed $15.8 billion.