Five Things We Can Expect from Siemens Healthineers’ Buyout of Varian Medical Systems
This week’s announcement that Siemens Healthineers (85% owned by Siemens) is purchasing Varian Medical Systems came as a surprise to many. Although Siemens exited the linear accelerator market in 2011, there were a few hints that they might someday return. First, Varian spun off its x-ray division, Varex, in order to make itself a more suitable acquisition target. Siemens also elbowed out GE as Varian’s imaging partner and developed close ties with them.
There is much speculation about what this will mean for both companies and for the industry. Below we summarize a few things we can expect to see as a result of this buyout.
1. Consolidation of distribution and sales force
Both Siemens and Varian have strong sales/service organizations and distribution networks. Both companies count hospitals, medical facilities, and government healthcare organizations among their customers. But while they are technically selling to different segments (one is radiation oncology and the other is diagnostic imaging), there will be a need to consolidate or streamline the two sets of distribution and sales networks. We should expect many of these groups to merge or replace each other. The result will be a lower headcount—and with it, lower costs.
2. More advanced technology
There are good reasons why Siemens and Varian are market leaders in their respective segments, and one big one is that each offers a superior product in its segment. We can expect these two industry behemoths to combine their intellect, know-how, and trade secrets to produce even more robust and powerful, winning technologies. Perhaps another MRI/Linac will emerge, or even another Linac PET/CT, like Reflexion introduced. For some time, both companies have been going beyond technology with a focus on clinical solutions and efficiency, leveraging artificial intelligence and machine learning. Whatever the ideas, we are sure they will help improve and transform healthcare as we know it.
3. More industry moves
One interesting outcome is that Accuray’s stock price advanced by a higher percentage than Varian’s stock price after the announcement of the two industry giants joining, what will happen to the other players? Perhaps this move will spawn more industry consolidation. Rumors have existed for years about possible suitors for Accuray or ViewRay. Will Philips buy Elekta? Will Elekta buy ViewRay? Will new players emerge who are more nimble and able to respond faster to particular niches? All of the above? Exciting times are ahead.
4. Consolidation hiccups
Many mergers and acquisitions have less-than-stellar results, often because of the difficulties of integrating companies with different cultures, management styles, and priorities. How will the Varian culture mesh with the Siemens culture? Both companies have a history of acquisitions, and hopefully both have learned from their experiences how to best navigate these murky waters. What will happen when resources must be allocated? Will the radiation oncology side win, or will the diagnostic imaging side? Hopefully, both will.
5. More opportunities for independent and third-party companies
Across many industries, businesses find it harder to innovate as they grow larger. Most large drug companies prefer to buy smaller, tested companies, rather than roll the dice on conducting drug development on their own. Soft drink giants like Coca-Cola find it easier to buy successful start-ups than to plow millions into R&D that may or may not show results. Varian grew its equipment business to where it is today by buying Gammamed (HDR), Calypso, ACCEL instruments GmbH, and others. Elekta grew by buying IMPAC (which became MOSAIQ software), 3DLine, Resonant Medical, and Nucletron, to name a few. What will the next acquisition targets be as Siemens continues to expand?
From the customer and patient’s perspectives, this new era of consolidation may have many benefits, including newer & better products. From an investor’s standpoint, greater efficiencies, stronger market penetration, and robust growth are expected. However, the bigger companies get, the result is often a lesser personal experience for the customer, and that can bring opportunities for other players as well.
*ROS is not affiliated with Varian Medical Systems, Inc. and Siemens Healthineers.