As stated by Kaeser, the CEO of Siemens, the health care industry was going through processes of industrialization and consolidation. The industry was moving from experience-based to knowledge-based by increasing the use of molecular diagnostics, advanced therapies, and data analytics. Healthineers, the subsidiary of Siemens AG, focused on applying technology in health care and becoming a global leader. Therefore, Siemens’ management planned an initial public offering of Healthineers to raise the capital and help Healthineers become a global market leader by providing it more flexibility and autonomy. By analyzing the profitability of Healthineers, assessing the possibility that the company could become a market leader in health care, and estimating the company’s market value once it is listed, should Healthneers go public and at what IPO price?
Robert S. Harris and Paul Holtz
Harvard Business Review (UV7995-PDF-ENG)
September 13, 2019
Case questions answered:
- Why does Kaeser want to do an IPO of Healthineers?
- What is the landscape of the healthcare industry in which Healthineers operates? What are the changes? Risks? Competition?
- Who will own Healthineers after the IPO? What is the investment thesis for investing in Healthineers?
- Based on DCF analysis, what is the company worth? What risks or concerns do you have?
- Based on multiples, what is the company worth?
- Based on a sum-of-the-parts valuation, what is the company worth?
- Would you recommend purchasing the stock at the top end of the planned offer range?
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Siemens and Healthineers: Valuing the IPO Case Answers
This case solution includes an Excel file with calculations.
Executive Summary – Siemens and Healthineers
As stated by Kaeser, the CEO of Siemens, the healthcare industry was going through processes of industrialization and consolidation. The industry was moving from experience-based to knowledge-based by increasing the use of molecular diagnostics, advanced therapies, and data analytics. Healthineers, the subsidiary of Siemens AG, focused on applying technology in health care and becoming a global leader.
Therefore, Siemens’ management planned an initial public offering of Healthineers to raise capital and help Healthineers become a global market leader by providing it more flexibility and autonomy.
Siemens operates in more than 200 countries and provides products and services for different industries. They have a highly diversified industrial portfolio, and all businesses are in a market-leading position. The goal of Siemens was to “consistently occupy attractive growth fields, fortify its core businesses, and surpass its competitors in efficiency and performance.”
Initiating an IPO for Healthineers will be in line with this strategy. Becoming an independent public company will provide Healthineers with more freedom and allow them to continue expanding their global leadership.
In terms of risks, listed companies are under greater pressure on profitability. Failure to meet expectations often leads to a decline in stock prices. In addition, an IPO may not be able to guarantee fund-raising because the price performance may be disappointing. We will elaborate on the details in the case context section.
We use three valuation models to estimate company value and stock price: the DCF model, the multiple models, and the sum of parts valuation model. By calculating the average of these three models, we estimate a stock price of $33.23. Thus, we would recommend purchasing stock equal to or lower than that.
As mentioned in the executive summary, Healthineers may face great pressure on profitability once it goes public. However, we believe the risk of failure to meet the expectations is relatively low. Healthineers is now in a leading position across all segments (medical imaging equipment, laboratory, point-of-care diagnostics, and advanced therapies).
The total addressable market is fairly large at EUR50 billion. The company occupied more than 30% of the market share in Imaging and Advanced Therapies and 15% in Diagnostics. Furthermore, the entry barriers are high, and markets are largely consolidated. Therefore, we are confident that IPO would help Healthineers thrive.
In addition, the IPO has brought…
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