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Johnson & Johnson (JNJ) is making another splash in the M&A space, announcing that it's acquiring ShockWave Medical (SWAV) in a deal valued at approximately $13 bln. The purchase price of $335/share in cash represents just a 4.7% premium over yesterday's closing price, but that's because shares of SWAV were already pricing in an acquisition. Recall that on March 26, the Wall Street Journal reported that JNJ was considering an acquisition of SWAV for $11 bln. Using SWAV's stock price from March 25, the $335/share offer equates to a premium of about 17%.

• After spinning off its consumer business, Kenvue (KVUE), in August 2023, JNJ is left with two main operating segments: Innovative Medicine (pharmaceuticals) and MedTech. Of the two, MedTech has been the stronger performer recently, generating sales growth of 13% in Q4 with acquisitions playing a key role in that growth. Specifically, its $16.6 bln acquisition of heart pump maker Abiomed in December 2022, and, to a lesser extent, its $400 mln buyout of Laminar in November 2023, has bolstered MedTech's growth.
• With the acquisition of SWAV, JNJ is using that same playbook to further accelerate MedTech's growth. The addition looks like a good fit as SWAV will expand MedTech's cardiovascular portfolio, particularly in underpenetrated categories within cardiovascular intervention.
  • SWAV is a first-to-market provider of innovative intravascular lithotripsy (IVL) technology for the treatment of calcified coronary artery disease (CAD) and peripheral artery disease (PAD), successfully treating approximately 400,000 patients globally.
  • IVL uses sonic pressure waves to break up calcium lesions in arteries, which can lead to heart attacks, helping to improve blood flow. While currently indicated for patients with CAD or PAD, SWAV is exploring the potential use of IVL in other indications, such as carotid artery disease and structural heart disease.
• SWAV's growth has been strong. In FY23, revenue jumped by 49% yr/yr to $730.2 mln, driven by higher purchase volume of its IVL products in the U.S. and increasing adoption of its products internationally. For FY24, the company guided for revenue of $910-$930, representing yr/yr growth of 26% at the mid-point. Equally impressive as the top-line growth is SWAV's gross margin, which came in at 88% in Q4, roughly flat on a yr/yr basis.
• Thanks to SWAV's strong growth and healthy margins, the economics of the deal look appealing overall, although JNJ expects financing costs to dilute adjusted EPS by $0.10 in 2024 and by approximately $0.17 in 2025. JNJ is financing the acquisition with cash on hand and debt. From an operational standpoint, though, the transaction is expected to be accretive to JNJ's and MedTech's operating margin, while also accelerating revenue growth.

The main takeaway is that JNJ has a successful track record of making sound acquisitions to bolster its growth and the acquisition of SWAV looks no different. After a rather lackluster Q4 earnings report, JNJ's growth could use a shot in the arm, and the addition of SWAV will help provide that antidote.