M&A Activity Likely to Pick Up for Medical-Technology Firms

Julie Utterback: Medical-technology firms are dipping their toes back into M&A waters after a brief drought recently. In stark contrast to the first quarter when there was no issuance related to acquisitions in the entire healthcare industry as firms grappled with uncertainty around recent ACA repeal and replacement efforts, we expect significant acquisition-related debt issuance from med-tech firms in the next few quarters.

In the largest M&A event, BBB+ rated Becton Dickinson agreed to acquire A+ rated C.R. Bard for about $24 billion. Becton plans to borrow $10 billion to fund this transaction, which will push leverage up to the mid-4s from around 3 times recently. Because of this planned combination, which is expected to close this fall, ratings on both companies are Under Review Negative.

Cardinal Health recently agreed to acquire Medtronic's patient care, deep vein thrombosis, and nutritional insufficiency businesses for $6 billion. While we do not see this as a significant event for Medtronic, Cardinal's management team plans to issue $4.5 billion in new senior notes by the end of the summer to fund the combination. That should cause gross leverage to rise and remain above 2 times through 2020, or above its previous target in the mid to high-1s. With this plan, our A rating on Cardinal is Under Review Negative.

In mid-April, Abbott recommitted to acquiring point-of-care diagnostics firm Alere, and this transaction is now expected to close by the end of the third quarter. As we stated when we downgraded our rating on Abbott by two notches in March, its rating is BBB+ with or without Alere. So we see no major changes to our view of Abbott because of this pending merger.