General Electric (GE) recently announced it was selling its biopharma business to Danaher (DHR) for $21.4 billion. The deal will allow GE to pare its $110 billion debt load and allow Danaher to continue to grow its Life Sciences segment. The deal was a masterstroke for GE. It will allow GE to put a sizeable dent its debt load and improve its credit metrics. I estimated GE’s $115 billion debt load was at 7x EBITDA at Q4 2018. Market chatter suggests the purchase price represents 17x 2019 EBITDA for GE Biopharma. This would imply the deal is credit positive for GE.
However, the deal could represent “mullet money,” or dumb money, for Danaher. I explain below.
Is Danaher Providing Mullet Money?
In investment parlance “mullet money” equates to a bad investment or an investment where the risks do not justify the rewards. I believe the GE Biopharma deal acquisition represents mullet money for the following reasons.
The Acquisition Likely Does Not Represent Danaher’s Negotiating Leverage
Danaher designs, manufactures and markets professional, medical, industrial and commercial products and services. Its business consists of four segments: Life Sciences; Diagnostics; Dental; and Environmental & Applied Solutions. Life Sciences offers research tools that scientists use to study genes, proteins, metabolites and cells, in order to understand the causes of disease, identify new therapies and test new drugs and vaccines. The company has grown the segment through a string of acquisitions. Read more:
