Analyst Note| Alex Morozov, CFA |
We have long been enamored with the radiotherapy industry, given its material barriers to entry, highly oligopolistic structure, and robust long-term demand tailwinds. We have awarded wide economic moats to both firms that account for the vast majority of revenue in this space--Varian and Elekta--and have speculated for a while that this highly attractive healthcare niche will eventually appeal to the larger healthcare conglomerates, several of which have previously been involved with radiotherapy. Thus the Aug. 2 announcement of Siemens Healthineers' return to the space via the acquisition of Varian wasn't unexpected. The price that Healthineers is paying for Varian--$177.50 per share, 45% above our stand-alone fair value estimate of $121 per share--fully values this wide-moat firm; Healthineers will have to more than just deliver on its expectation of $300 million in annual synergies for the deal to become value-accretive. Our expectation now is that Elekta should be next; given its long-standing partnership with Royal Philips and historic roots, it wouldn't surprise us if the two come together.