Insight journal - Dealtalk

Dealtalk: Johnson & Johnson kicks off $5 billion clinical diagnostics unit sale

Posted on 10 September 2013

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In dealtalk, Johnson & Johnson launched a sale process for its Ortho Clinical Diagnostics unit for around $5 billion.

The unit which makes blood screening equipment and laboratory blood tests and could fetch around $5 billion, according to dealtalk.

J&J has asked JPMorgan Chase & Co to run the sale and is preparing to send detailed financial information in coming weeks to potential buyers, including some of the world's largest private equity firms and a number of healthcare companies, the dealtalk said.

Early estimates suggest the unit's earnings before interest, tax, depreciation and amortization are between $400 million and $500 million, suggesting a possible valuation of roughly $5 billion, according to dealtalk.

The unit, whose tests are considered older and less profitable than modern molecular diagnostics that examine gene mutations for signs of disease, has annual sales of about $2 billion.

Healthcare conglomerate J&J said in January it would explore strategic alternatives for the unit and cautioned that the process could take anywhere from about 12 to 24 months.

Industrial and healthcare conglomerates General Electric and Danaher Corp. are likely to take a serious look at bidding for the J&J business, according to the dealtalk.

J&J's decision to divest the division comes as drugmakers are shedding businesses and cutting costs due to overseas price controls and pressure on payments from insurers and the government. Pfizer Inc, for instance, just spun off its animal health products business, and Abbott Laboratories split off its branded drugs unit early this year.

Ortho Clinical Diagnostics, whose revenue growth has been relatively flat, is No. 5 in the clinical diagnostics market, as measured in sales. Typically, J&J's businesses rank first or second in their respective markets.

Clinical diagnostics are less attractive than molecular diagnostics, which could see strong revenue growth in coming years as examination of genes helps doctors steer patients to appropriate treatments.

But some analysts, including Les Funtleyder of Poliwogg, have said private equity buyers might be interested in the stable cash flow the J&J unit could provide.



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