As expected and reported yesterday in Hearing Review online news (Nov 5), Siemens AG is selling its Siemens Audiology Solutions unit to the Stockholm-based private-equity firm EQT Partners AB and Germany’s Strüngmann family of entrepreneurs as co-investors. The purchase price is €2.15 billion ($2.67 billion) plus an earn-out component, and the sale is subject to regulatory approval.
Due to what the company characterized as a “very attractive offer” made by the two investors, Siemens has decided not to pursue preparations for the public listing it announced in May.
“In the past years Siemens Healthcare has invested significantly in its audiology business,” said Hermann Requardt, CEO of Siemens Healthcare and member of the Managing Board of Siemens AG. “Both EQT with the Wallenberg family as anchor investor and the Strüngmann family have outstanding reputations and extensive experience in the healthcare sector. Not only is the transaction excellent from a financial perspective; we’re also convinced that both investors have a clear growth strategy for further developing the hearing aid business over the long term.”
The company reports that, in fiscal 2014, Siemens’ globally active audiology business employed over 5000 people, generated revenue of €693 million ($861 million), and realized an EBITDA of €145 million ($180 million). Key locations include its headquarters in Erlangen, Germany, as well as major facilities in Piscataway, NJ, Kanagawa (Greater Tokyo), Crawley, UK, and Saint Denis (Greater Paris).
Siemens will be an equity investor in the hearing aid business with preferred equity of €200 million ($248 million) and will benefit from any future business successes. In addition, Siemens will have a seat on the board of the buyer group. Under the terms of the agreement, the new owners will also be allowed to continue using the Siemens product brand for the hearing aid business over the medium term.
The new owners. Both EQT, with the Wallenberg family as anchor investor, and the Struengmann family have extensive experience in healthcare. EQT is a growth-oriented investment company managing around €22 billion ($27 billion) in assets and proven expertise in the healthcare and medical engineering sector. It is the owner of LBX, one of the largest pharmacy chains in China’s growth market. Germany’s Strüngmann family of entrepreneurs is also known for its focus on long-term growth. In 1986, the family founded Hexal, which has since become Germany’s leading provider of generic drugs.
“The Siemens audiology business has a very strong heritage for innovative, high quality products, and we have been particularly impressed with the strong track record over the last couple of years,” said Marcus Brennecke, partner at EQT Partners. “EQT is fully committed to supporting the management and employees in developing the business further.”
The company believes the transaction will provide the audiology business with additional entrepreneurial freedom and flexibility—with positive prospects for customers and employees. Siemens says agreements have been reached to ensure job security for the business’s employees in Germany, who are working at locations in Erlangen and Herford.
The transaction, which still requires regulatory approval, is expected to be closed in the first quarter of calendar year 2015 and will be financed with roughly €1.1 billion ($1.4 billion) of equity.
Lead-up and analysis. In May, Siemens AG announced it would spin off its hearing aid division as a public company, the result of a major company realignment to pare the industry giant’s number of core business divisions from 16 to 9.
Early last week, news broke that Siemens AG had been in advanced talks to sell its hearing aid division via a sealed bidding process to at least three potential buyers: hearing industry giant GN Store Nord, and the private-equity firms Permira Advisors LLP, and EQT Partners AB. Hearing Review reported on both Permira and finally GN Store Nord dropping out of the bidding contest, leaving EQT and the IPO as the only likely options.
Siemens Hearing Instruments is one of the oldest and most respected hearing aid manufacturers in the world, beginning its involvement in the industry more than 100 years ago. In 1913, the company brought to market what is thought to be the first industrially produced hearing aid, the Esha Phonophor, and the company has had many other important “industry firsts.” In more recent years, it was first to introduce hearing aids utilizing radio technology to synchronize operation between the left and right ears, and in 2012 Siemens was awarded the German Future Prize for developing a binaural hearing system that enables hearing aids in both ears to communicate. The company’s new binax binaural beamforming technology was among the most exciting product introductions at the 2014 EUHA Congress held in Hannover in mid-October.
Although a formidable force in the hearing industry, the Siemens Audiology group (which includes Rexton) has lost market share during the last decade. At one time, analysts estimated that it had a worldwide market share of more than 25%. However, now that number is estimated at about 17%, falling behind rival groups Sonova (Phonak and Unitron), William Demant Holding (Oticon, Bernafon, and Sonic), and possibly GN (ReSound, Beltone, and Interton). In the United States, the group has also been a relatively quiet player in the forward consolidation movement in which hearing aid manufacturers have bought up larger retail outlets—although Siemens did purchase HearUSA in 2011 after that company filed for bankruptcy.
Several times in the past 5 years there have been rumors from credible sources about Siemens AG putting its hearing aid division on the block. Notably, in January 2010, the company offered the division for sale and then backed off selling it when the nearest bidder was a half-billion euros short of Siemens’ 2 billion euro asking price, according to published reports.
In light of today’s announced sale, it would appear there is a significant opportunity for the new owners to leverage the substantial talents of the company’s employees, and further drive the development of Siemens Audiology Solutions via greater entrepreneurial freedom and flexibility, as well as increased capital expenditures, R&D investment, and the implementation of new growth strategies.