Sivantos and Widex in $8 bln merger to create No.3 in hearing aids
* New company will be world No.3 behind Sonova, William
* EQT funds and co-investors to be majority shareholder
* Combined business to step up spending on new technologies
(Adds EQT comment)
By Stine Jacobsen and Arno Schuetze
COPENHAGEN/FRANKFURT, May 16 (Reuters) - Hearing aid makers
Widex and Sivantos are merging to create an industry number
three that can invest more in digital devices and step up the
challenge to market leaders Sonova and William Demant
Germany's Sivantos, formerly known as Siemens Audiology, and
Denmark's Widex said on Wednesday that they had agreed to form a
company worth more than 7 billion euros ($8.3 billion),
including 3 billion euros in debt.
Makers of hearing aids, whose customers are typically in
their seventies and eighties, are benefiting from rising demand
in ageing societies, but some are facing challenges adapting to
the digital age and the demands of more tech-savvy generations.
"Innovation is one of the biggest areas of growth, and this
is accelerating because we have a new group of consumers that is
coming with a completely different mindset," Sivantos Chief
Executive Ignacio Martinez told Reuters.
The merger will enable the enlarged company to invest more
in research and development (R&D) in areas such as bluetooth and
sensors, he said.
One of the technologies hearing aid makers are hoping will
attract younger customers is the capture of healthcare data
using sensors in the devices.
The ear is a good source for capturing data such as
heartbeats and blood pressure and the technology could be
available within the next three years, according to Morgan
Funds of Swedish private equity firm EQT, including
co-investors, will own a majority of the merged group. The
Topholm and Westermann families, who currently own Widex, will
retain large stakes and be the largest shareholder group. EQT
bought Sivantos from Siemens in 2015 for more than 2 billion
The combined group, the name of which has yet to be decided,
will have 1.6 billion euros in annual sales and employ more than
10,000 people worldwide, including 800 in R&D.
Bernstein analysts estimate the deal has an enterprise value
(EV) - equity plus debt - of 20 times the combined companies'
2017 earnings before interest, tax, depreciation and
Denmark's GN Sore Nord, one of the world's four
biggest hearing aid suppliers, is trading on an EV/EBITDA ratio
of about 17 times, with William Demant on 23 times and Sonova 22
times, they added.
Widex and Sivantos declined to comment on the valuation or
to disclose the distribution of stakes. They described the deal
as a "merger of equals", indicating no cash was involved.
The merger is likely to push back EQT's plans for a stock
market listing of Sivantos by a few years, EQT Germany chief
Marcus Brennecke indicated in an interview with German daily
Frankfurter Allgemeine Zeitung.
"We keep our holdings for four to five years on average,"
the paper quoted Brennecke as saying, adding that the merger
with Widen had reset the clock on the holding to zero.
He still said that an IPO was "very, very likely"
Widex chairman Jan Topholm told Reuters: "It is very
possible that there will be an IPO, but the only thing we know
is that we will continue to be a large shareholder."
Sonova has been criticised for missing an opportunity when
GN introduced direct-streaming hearing aids for wireless devices
in 2014, but it closed that gap last year.
Sivantos and Widex have similar technologies.
The Bernstein analysts said that increasing R&D spend may
allow Sivantos and Widex to draw ahead of rivals, and the new
entity might experiment with new approaches to the market,
challenging the traditional model of selling through specialist
"With around a third of Demant and Sonova sales coming from
owned retail, this would be bad news particularly for those
players," they said in a note to clients.
Sonova shares were down 2.1 percent at 1235 GMT, while GN
was down 0.6 percent and William Demant up 1 percent.
Sydbank analyst Morten Imsgard said that Sonova, William
Demant and the newly formed company would each have a market
share of about 25 percent market, followed by GN Store
with 16 percent and Starkey on 9 percent.
Financing in connection with the merger is being provided by
J.P. Morgan, Goldman Sachs and Deutsche Bank.
Widex is being advised by J.P. Morgan, Kromann Reumert and
Deloitte. EQT and Sivantos are being advised by Freshfields
Bruckhaus Deringer, Plesner, PricewaterhouseCoopers and AON.
($1 = 0.8450 euros)
(Reporting by Stine Jacobsen and Arno Schuetze; Editing by
Alexander Smith, Mark Potter and David Goodman)
First Published: 2018-05-16 08:49:32
Updated 2018-05-16 17:11:50
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