Heading into its first year as a devices-only outfit, Covidien ($COV) has grabbed a manufacturer in Brazil and signed up for another joint venture in China, continuing the device company's effort to expand its foothold in emerging markets.
The Dublin-based company acquired the Brazilian manufacturer WEM Equipamentos Electronicos, which makes electrosurgical generators, disposables and accessories. For an undisclosed amount, WEM will become part of Covidien's Brazilian operations. And at the same time, Covidien linked up with the Chinese Changzhou Kangdi Medical Stapler Co. in a joint venture giving Covidien majority control.
Covidien said it doesn't expect much revenue from the deals this year, but that establishing a presence in these growing markets could be strategically beneficial down the road--cheaper manufacturing and local connections will help it expand further in both countries.
The Irish company is coming off a flat year of sales and was forced to cut jobs and close plants in a September restructuring designed to save up to $300 million. Earlier, Covidien had spun out its drug business into Mallinckrodt ($MNK) in June, and it showed a pedestrian forecast for 2014 of only 2% to 5% growth. It is its first full year without drug sales to back it up.
At the time, Covidien said it would react to the changing market by taking more opportunities overseas. At the JPMorgan Healthcare Conference this week, CEO Jose Almeida reiterated the notion, MassDevice reported. In an investor presentation, Almeida said the company would be taking money from its businesses in the U.S. and Europe to focus elsewhere in the world. These two deals mark an even more specific tack: the company is looking to make a move in the "value segment" in particular, focusing on cutting costs for patients with less.
"These deals accelerate our entry into an increasingly important customer segment that we believe will enable us to grow above market over time and increase access to affordable healthcare solutions," Brian King, Covidien's president of emerging markets, said in a statement. "By combining Covidien's proven business model with the capabilities of our new partners, we'll be able to scale the value segment opportunity and help provide more affordable healthcare solutions in new markets."
It's not Covidien's only long-term strategy. At the end of last year, Covidien disclosed plans to buy Given Imaging ($GIVN), maker of the PillCam oral endoscopic camera, for $860 million. And the company is looking toward R&D to expand its device specialties into other high-growth spaces such as renal denervation and drug-eluting balloons in the long term.
But it all depends on whether these long-term investments in emerging markets and new technologies can ultimately pay off in time for the company to start seeing a faster-growing top line.
- here's the release