Cameron Health’s March acquisition by Boston Scientific for $1.3B was the subject of some Monday morning quarterbacking by stock analysts.
Leerink Swan Analyst Rick Wise was quoted in Mass High Tech saying “the purchase of Cameron is a major positive for Boston Scientific, ‘with the potential to transform the longer-term outlook for BSX’s lagging CRM business.'”
The Wall Street Journal quoted Citigroup as saying “the dated deal structure … looks too rich and risky” for Boston Scientific.
Whatever the analyst opinions, the striking aspect of the Boston Sci/Cameron deal is the imbalance between the $150M upfront price and the $1.2B in milestone-based payments.
The Wall Street Journal mentioned that “Boston Scientific and Cameron have had a deal in place since a 2003 investment. The agreement would allow Boston Scientific to choose whether or not it would buy Cameron within 90 days of Cameron’s filing with the FDA for approval of its device. The deal includes $150 million upfront, an additional $150 million if the device is given FDA approval and up to $1.05 billion in revenue-based milestone payments in the six years following an FDA approval.”
When you consider that more than $190M was ultimate invested in Cameron before the acquisition, you see that the investors’ return is totally based on milestone payments.
No matter how the analysts see it, I see this acquisition as a great example of “getting the deal done.” In every transaction, there are many roadblocks to closing the deal. Shareholder incentives are never perfectly aligned. Acquirers want to pay as little as possible. Despite the challenges, Cameron found a way to get the deal done.
Too many management teams aren’t able to close the deal. I know of several medical device companies that regret turning away acquisition offers. For a startup board, it’s the proverbial dilemma of a bird in the hand versus two in the bush. In each case, the startup’s board felt the company would be worth more later, so the startup remained independent.
Milestone payments and transaction contingencies are critical tools that get deals done. A startup board’s view of the potential future value of the company always diverges from that of the potential acquirer. The board focuses on upside potential, while the acquirer sees all the downside risks. Payments and transaction terms that are contingent on future events can bridge the expectation gap between buyer and seller. If regulatory and commercial outcomes are successful, the buyer justifiably pays more. If not, the buyer is protected.
Not knowing the individuals involved, I can only imagine the thinking that went on at Cameron and Boston Scientific in 2003. Cameron’s investors must have seen the company as an opportunity for a big win. Boston Scientific must have seen a great investment opportunity that still had a huge amount of risk. They crafted a deal that allowed startup investors to participate in a future big success while enabling Boston Sci to manage its risk. Despite a tremendous amount of uncertainty, they found a way to get the deal done.
Of course, sometimes deals shouldn’t get done. Management teams must first determine whether the prospective partnership will truly accelerate business success. If the fit is right, great management teams get the deal done. Cameron certainly did.