- Connected health care is ‘attractive’ market: CEO Van Houten
- ‘There’s no room for complacency’ amid competition, CEO says
Royal Philips NV, the Dutch maker of health-care equipment, is looking at billion-dollar-plus acquisitions in the coming months following a spinoff of its lighting business.
Health-care informatics, combining technology and data to manage patient health, is a target market, Chief Executive Officer Frans van Houten said in an interview. A typical purchase might be similar to the company’s $1.2 billion takeover in 2014 of smart catheter-maker Volcano Corp., he said. Philips may also pursue smaller deals, he said.
Health care is Philips’s largest business and accounted for 45 percent of revenue last year. Technology in the industry is changing rapidly and traditional rivals like Medtronic Plc and new entrants such as Google parent Alphabet Inc. and Apple Inc. are stepping up the pressure. Philips’s wide-ranging product history -- everything from light bulbs and coffee makers to MRI machines -- could help it grab more of the connected market for homes and hospitals. The goal is to integrate hardware, software and services for health-care systems, an arena that includes tech giant International Business Machines Corp.
“It has not escaped us that other competitors have also identified health as an attractive marketplace,” Van Houten said. “Clearly there’s no room for complacency. I continue to be the guy who has a lot of fire in the belly to make sure that we continue to move.”
The company isn’t actively pursuing any major acquisitions at the moment, the CEO said.
Pockets of Growth
Philips is expanding in health care as the world’s population ages and countries are looking to technology to ease the increasing burden on their health-care systems. While the industry as a whole is growing slowly, pockets such as mHealth -- which relies on mobile devices to provide patient monitoring, diagnostics and other services -- should reach $59.15 billion by 2020, a compounded annual growth rate of 33 percent on average, according to researcher MarketsandMarkets.
Pieter Nota, head of Philips’s personal health unit, expects connected healthcare to become mainstream in the next decade, he said during a conference call on Wednesday. “It is already existing today and it will start to play a major role in the course of the coming years.”
Acquisitions will be necessary because “the underlying growth in health care isn’t that great,” Marcel Achterberg, an analyst at Bank Degroof Petercam in Amsterdam, said in a phone interview. Potential takeovers in health-care informatics will likely focus on startups, he said.
Van Houten announced plans in 2014 to split the company in two, and last month, about 25 percent of Philips Lighting -- the world’s biggest general lighting business -- was offered to the public on the Dutch exchange. Philips now has the money to reduce debt incurred in the Volcano acquisition and buy additional companies to increase scale, he said.
“Over time we’ll bring the rest of Lighting to the market,” Van Houten said. “That means that there’s going to be multiple moments of cash inflow. As we then continue to improve our performance, we also generate the cash streams to pursue even more acquisitions.”
Philips’s experience in lighting and electronics serves it well as it’s been very adaptable as technology has changed, said Karen Taylor, research director for Deloitte U.K. Centre for Health Solutions.
“They are not tight-bound by the historical conventions of traditional health-care providers, the risk aversion to innovation -- their culture isn’t like that,” Taylor said. “You’ve got these new companies which have a more innovative and flat structure, that identify things that work and then get them quickly adopted.”
Shares of Amsterdam-based Philips are little changed over the past year.
Philips is also promoting innovation internally. Last year, it invested 8 percent of annual revenue into research and development, focused on informatics, pathology, infertility and pregnancy, connected wearables and other areas.
The company’s push forward may be driven partly by a study it released Wednesday, looking at how markets around the world are positioned to meet long-term health challenges through integration and connected care. The study found that technology is a generational issue for both health-care professionals and patients, with younger people more likely to use and share information from connected technology. More than half of patients ages 18 to 34 reported that they own or use at least one health-monitoring device. A quarter of that population said they are knowledgeable about connected-care technology, compared with 14 percent of people ages 55 and older, the study found.
According to the survey of more than 25,000 patients and almost 2,700 health-care professionals in 13 countries, emerging markets also appear to be leading in the adoption of cutting-edge technologies.